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Governing the Resource: Scarcity-Induced Institutional Change

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  • James Roumasset

    ()
    (University of Hawaii at Manoa, Department of Economics)

  • Nori Tarui

    ()
    (University of Hawaii at Manoa, Department of Economics)

Abstract

We provide a dynamic model of natural resource management where the optimal institutional structure that governs resource use changes with resource depletion. Copeland and Taylor (2009) analyze how characteristics of a natural resource determine whether its steady-state management regime is open access, communal property, or private property. We extend this and other studies of endogenous institutions to analyze how and when resource governance may change in transition to the steady state, taking into account the fixed costs of institutional change and the variable costs of enforcement and governance. Assuming that governance cost is increasing in the difference between open-access and the actual harvest, we show that open access can be optimal if the resource is abundant relative to its demand and/or if governance costs are high. Once open access is rendered inefficient due to increased resource scarcity, further depletion warrants institutional change. In the face of set-up costs, optimal governance implies non-monotonic resource dynamics. These findings help to explain the co-evolution of resource scarcity and property rights—from open access to common property and beyond. We also extend the Demsetz/Copeland-Taylor theory of price-induced institutional change to include changing scarcity during the transition to the steady state.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_10-15.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 201015.

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Length: 31 pages
Date of creation: 13 Sep 2010
Date of revision:
Handle: RePEc:hai:wpaper:201015

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  1. de Meza, David & Gould, J R, 1992. "The Social Efficiency of Private Decisions to Enforce Property Rights," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 561-80, June.
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Cited by:
  1. Karl Jandoc & Richard Howitt & James Roumasset & Christopher Wada, 2014. "Institutions for Managing Ground and Surface Water and the Theory of the Second-Best," Working Papers 201415, University of Hawaii at Manoa, Department of Economics.
  2. James Roumasset & Christopher Wada, 2012. "The Economics of Groundwater," Working Papers 201211, University of Hawaii at Manoa, Department of Economics.
  3. Kimberly Burnett & Lee Endress & Majah-Leah Ravago & James Roumasset & Christopher Wada, 2011. "Islands of Sustainability in Time and Space," Working Papers 201112, University of Hawaii at Manoa, Department of Economics.

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