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Income distributional effects of using market-based instruments for managing common property resources

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  • Siwa Msangi
  • Richard E. Howitt

Abstract

In this article, the authors show the trade-offs between efficiency and equity that arise from the application of market-based instruments to a heterogenous population of agents drawing from a natural resource pool. Using the example of groundwater, they find that there are overall losses in allocative efficiency when the centralized planner is constrained by equity considerations, and that the distribution of gains or losses to management becomes skewed asymmetrically across agents. These results demonstrate the importance of considering both efficiency gains and disparities in distributional inequity, when designing policy instruments that create winners and losers with potentially serious sociopolitical ramifications. Copyright 2007 International Association of Agricultural Economists.

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Bibliographic Info

Article provided by International Association of Agricultural Economists in its journal Agricultural Economics.

Volume (Year): 37 (2007)
Issue (Month): s1 (December)
Pages: 249-259

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Handle: RePEc:bla:agecon:v:37:y:2007:i:s1:p:249-259

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  1. Feinerman, Eli, 1988. "Groundwater Management: Efficiency and Equity Considerations," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 2(1), June.
  2. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
  3. Farrell, Joseph, 1987. "Information and the Coase Theorem," Department of Economics, Working Paper Series qt1sc2r800, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62, pages 124.
  5. Tsur, Yacov & Dinar, Ariel, 1995. "Efficiency and equity considerations in pricing and allocating irrigation water," Policy Research Working Paper Series 1460, The World Bank.
  6. Kim, C. S. & Moore, Michael R. & Hanchar, John J. & Nieswiadomy, Michael, 1989. "A dynamic model of adaptation to resource depletion: theory and an application to groundwater mining," Journal of Environmental Economics and Management, Elsevier, vol. 17(1), pages 66-82, July.
  7. McGartland, Albert M. & Oates, Wallace E., 1985. "Marketable permits for the prevention of environmental deterioration," Journal of Environmental Economics and Management, Elsevier, vol. 12(3), pages 207-228, September.
  8. Knapp Keith C. & Olson Lars J., 1995. "The Economics of Conjunctive Groundwater Management with Stochastic Surface Supplies," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 340-356, May.
  9. Dasgupta,P. S. & Heal,G. M., 1985. "Economic Theory and Exhaustible Resources," Cambridge Books, Cambridge University Press, number 9780521297615, April.
  10. Murphy, James J. & Dinar, Ariel & Howitt, Richard E. & Mastrangelo, Erin & Rassenti, Stephen J. & Smith, Vernon L., 2002. "Mechanisms For Addressing Third-Party Impacts Resulting From Voluntary Water Transfers," 2002 Annual meeting, July 28-31, Long Beach, CA 19812, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Feinerman, Eli, 1988. "Groundwater management: Efficiency and equity considerations," Agricultural Economics, Blackwell, vol. 2(1), pages 1-18, June.
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