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Natural-resource exploitation with costly enforcement of property rights

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Author Info
Louis Hotte

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Abstract

A model of resource exploitation when private ownership requires costly enforcement is developed. Enforcement costs are endogenized as the outcome of a game between a resource owner and illegal extractors. I find that two instruments are used to deter illegal extraction: policing efforts and purposeful 'overexploitation' of the resource. The latter works by reducing the returns from illegal activities. Hence, even with private ownership, the marginal product of a resource worker may be below his marginal product in alternative employment. Conditions are found for which at low wage rates, further wage reductions lower profits. Those conditions are necessary and sufficient for the existence of a range of low wages characterized by a free-access equilibrium. This may explain the more frequent prevalence of free access in less-developed countries. I show that higher resource prices will not lead to more free-access, but may lead to 'value destruction'. Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpi020
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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 57 (2005)
Issue (Month): 3 (July)
Pages: 497-521
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Handle: RePEc:oup:oxecpp:v:57:y:2005:i:3:p:497-521

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  5. Clarke, Harry R. & Reed, William J. & Shrestha, Ram M., 1993. "Optimal enforcement of property rights on developing country forests subject to illegal logging," Resource and Energy Economics, Elsevier, vol. 15(3), pages 271-293, September. [Downloadable!] (restricted)
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  8. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
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  9. Helsley, Robert W. & Strange, William C., 1994. "Exclusion and the private enforcement of property rights," Journal of Public Economics, Elsevier, vol. 53(2), pages 291-308, February. [Downloadable!] (restricted)
  10. Anderson, Terry L & Hill, Peter J, 1975. "The Evolution of Property Rights: A Study of the American West," Journal of Law & Economics, University of Chicago Press, vol. 18(1), pages 163-79, April.
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  12. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-37, October. [Downloadable!] (restricted)
  13. North, Douglass C, 1991. "Institutions," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 97-112, Winter. [Downloadable!] (restricted)
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  16. James A. Brander & M. Scott Taylor, 1995. "International Trade and Open Access Renewable Resources: The Small Open Economy Case," NBER Working Papers 5021, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Cheung, Steven N S, 1970. "The Structure of a Contract and the Theory of a Non-exclusive Resource," Journal of Law & Economics, University of Chicago Press, vol. 13(1), pages 49-70, April.
  18. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-31, December. [Downloadable!] (restricted)
  19. Field, Barry C, 1989. "The Evolution of Property Rights," Kyklos, Blackwell Publishing, vol. 42(3), pages 319-45.
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