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Ownership Risk and the Use of Common-Pool Natural Resources

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  • Jérémy LAURENT-LUCCHETTI
  • Marc SANTUGINI

    ()
    (IEA, HEC Montréal)

Abstract

It has long been recognized that the quality of property rights greatly impacts the economic development of a country and the use of its natural resources. Since Long (1975), the conventional wisdom has been that ownership risk induces a firm to overuse the stock of a resource. However, the empirical evidence is mixed. In particular, Bohn and Deacon (2000) finds that weak property rights have an ambiguous effect on present extraction. We provide a theoretical model supporting these mixed observations in a common-pool resource environment. We show that if ownership risk includes a risk of expropriation in which the identities of the excluded firms are unknown ex ante, then the present extraction of all firms may decrease along with a higher risk of expropriation. The elasticity of demand for the resource is key in explaining the effect of ownership risk on present extraction.

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Bibliographic Info

Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 10-03.

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Length: 38 pages
Date of creation: Jul 2010
Date of revision: May 2011
Handle: RePEc:iea:carech:1003

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Related research

Keywords: Common-pool resource; Expropriation; Extraction behavior; Ownership risk; Property rights; Tragedy of the commons.;

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References

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  1. Frederick van der Ploeg, 2008. "Voracious Transformation of a Common Natural Resource into Productive Capital," OxCarre Working Papers 002, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Jacoby, Hanan G. & Li, Guo & Rozelle, Scott, 2002. "Hazards Of Expropriation:Tenure Insecurity And Investment In Rural China," Working Papers 11960, University of California, Davis, Department of Agricultural and Resource Economics.
  3. Robert T. Deacon & Henning Bohn, 2000. "Ownership Risk, Investment, and the Use of Natural Resources," American Economic Review, American Economic Association, vol. 90(3), pages 526-549, June.
  4. Koulovatianos, Christos & Mirman, Leonard J., 2007. "The effects of market structure on industry growth: Rivalrous non-excludable capital," Journal of Economic Theory, Elsevier, vol. 133(1), pages 199-218, March.
  5. Stiglitz, Joseph E & Dasgupta, Partha, 1981. " Market Structure and Resource Extraction under Uncertainty," Scandinavian Journal of Economics, Wiley Blackwell, vol. 83(2), pages 318-33.
  6. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
  7. 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.
  8. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  9. Hotte, Louis & Long, Ngo Van & Tian, Huilan, 2000. "International trade with endogenous enforcement of property rights," Journal of Development Economics, Elsevier, vol. 62(1), pages 25-54, June.
  10. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
  11. John Hartwick & Perry Sadorsky, 1988. "Duopoly in Exhaustible Resource Exploration and Extraction," Working Papers 721, Queen's University, Department of Economics.
  12. Farzin, Y Hossein, 1984. "The Effect of the Discount Rate on Depletion of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 841-51, October.
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Cited by:
  1. Frederick van der Ploeg, 2012. "Breakthrough Renewables and the Green Paradox," OxCarre Working Papers 091, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Rick van der Ploeg & Dominic Rohner, 2010. "War and Natural Resource Exploitation," OxCarre Working Papers 042, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  4. Fesselmeyer, Eric & Santugini, Marc, 2013. "Strategic exploitation of a common resource under environmental risk," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 125-136.
  5. Torfinn Harding & James Cust, 2013. "Institutions and the Location of Oil Exploration," Economics Series Working Papers OxCarre Research Paper 12, University of Oxford, Department of Economics.
  6. Kelly Wendland & David Lewis & Jennifer Alix-Garcia, 2014. "The Effect of Decentralized Governance on Timber Extraction in European Russia," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 57(1), pages 19-40, January.

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