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The Public Resource Management Game

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Author Info

  • Myles J. Watts
  • Jennifer L. Steele
  • Jay P. Shimshack
  • Jeffrey T. LaFrance

Abstract

Use of public resources for private economic gain is a longstanding, contested political issue. Public resources generate benefits beyond commodity uses, including recreation, environmental and ecological conservation and preservation, and existence and aesthetic values. We analyze this problem using a dynamic resource use game. Low use fees let commodity users capture more of the marginal benefit from private use. This increases the incentive to comply with government regulations. Optimal contracts therefore include public use fees that are lower than private rates. The optimal policy also includes random monitoring to prevent strategic learning and cheating on the use agreements and to avoid wasteful efforts to disguise noncompliant behavior. An optimal policy also includes a penalty for cheating beyond terminating the use contract. This penalty must be large enough that the commodity user who would gain the most from noncompliance experiences a negative expected net return.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/2911thepublicresourcelafrance.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 29-11.

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Length: 27 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-29

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Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
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Web page: http://www.buseco.monash.edu.au/eco/
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Related research

Keywords: Renewable resources; public resources policy; optimal contracts;

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  1. LaFrance, Jeffrey T. & Barney, L. Dwayne, 1991. "The envelope theorem in dynamic optimization," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 355-385, April.
  2. Johnson, Ronald N. & Watts, Myles J., 1989. "Contractual stipulations, resource use, and interest groups: Implications from federal grazing contracts," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 87-96, January.
  3. Li, Luning, 1994. "A counterexample to a conjecture on order statistics," Statistics & Probability Letters, Elsevier, vol. 19(2), pages 129-130, January.
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