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Natural-Resource Exploitation with Costly Enforcement of Property Rights

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  • HOTTE, Louis

Abstract

This paper proposes a model of natural-resource exploitation when private ownership requires costly enforcement activities. For a given wage rate, it is shown how enforcement costs can increase with labor's average productivity on a resource site. As a result, it is never optimal for the site owner to produce at the point where marginal productivity equals the wage rate. It may even be optimal to exploit at a point exhibiting negative marginal returns. An important parameter in the analysis is the prevailing wage rate. When wages are low, further decreases in the wage rates can reduce the returns from resource exploitation. At sufficiently low wages, positive returns can be rendered impossible to achieve and the site is abandoned to a free-access exploitation. The analysis provides some clues as to why property rights may be more difficult to delineate in less developed countries. It proposes a different framework from which to address normative issues such as the desirability of free trade with endogenous enforcement costs, the optimality of private decisions to enforce property rights, the effect of income distribution on property rights enforceability, etc.

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File URL: http://hdl.handle.net/1866/480
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Bibliographic Info

Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 9720.

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Date of creation: 1997
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Handle: RePEc:mtl:montde:9720

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Keywords: orty rights; enforcement costs; natural resources; income levels; economic develoent; economics of crime; illegal labor;

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References

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  1. Robin Brooks & Michael Murray & Stephen Salant & Jill C. Weise, 1999. "When Is the Standard Analysis of Common Property Extraction under Free Access Correct? A Game-Theoretic Justification for Non-Game-Theoretic Analyses," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 843-858, August.
  2. James A. Brander & M. Scott Taylor, 1997. "International Trade and Open-Access Renewable Resources: The Small Open Economy Case," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 526-52, August.
  3. Stigler, George J, 1970. "The Optimum Enforcement of Laws," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 526-36, May-June.
  4. Field, Barry C, 1989. "The Evolution of Property Rights," Kyklos, Wiley Blackwell, vol. 42(3), pages 319-45.
  5. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
  6. Anderson, Terry L & Hill, Peter J, 1975. "The Evolution of Property Rights: A Study of the American West," Journal of Law and Economics, University of Chicago Press, vol. 18(1), pages 163-79, April.
  7. International Monetary Fund, 1997. "Corruption and the Rate of Temptation," IMF Working Papers 97/73, International Monetary Fund.
  8. Cohen, Jon S. & Weitzman, Martin L., 1975. "A Marxian model of enclosures," Journal of Development Economics, Elsevier, vol. 1(4), pages 287-336, November.
  9. 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.
  10. 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.
  11. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, December.
  12. Jon G. Sutinen & Peder Andersen, 1985. "The Economics of Fisheries Law Enforcement," Land Economics, University of Wisconsin Press, vol. 64(4), pages 387-397.
  13. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
  14. Ehrlich, Isaac, 1973. "Participation in Illegitimate Activities: A Theoretical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 521-65, May-June.
  15. Lasserre, Pierre, 1994. "Protection décentralisée des droits de propriété, police et justice," L'Actualité Economique, Société Canadienne de Science Economique, vol. 70(2), pages 177-189, juin.
  16. Friedman, David & Sjostrom, William, 1993. "Hanged for a Sheep--The Economics of Marginal Deterrence," The Journal of Legal Studies, University of Chicago Press, vol. 22(2), pages 345-66, June.
  17. Cheung, Steven N S, 1970. "The Structure of a Contract and the Theory of a Non-exclusive Resource," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 49-70, April.
  18. Milliman, Scott R., 1986. "Optimal fishery management in the presence of illegal activity," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 363-381, December.
  19. Cowell, F A, 1981. "Taxation and Labour Supply with Risky Activities," Economica, London School of Economics and Political Science, vol. 48(192), pages 365-79, November.
  20. 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.
  21. 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.
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Citations

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Cited by:
  1. Aldave, Iván & García-Peñalosa, Cecilia, 2009. "Education, Corruption and the Natural Resource Curse," Working Papers 2009-005, Banco Central de Reserva del Perú.
  2. van der Ploeg, Frederick & Rohner, Dominic, 2012. "War and natural resource exploitation," European Economic Review, Elsevier, vol. 56(8), pages 1714-1729.
  3. Hotte, Louis, 2001. "Conflicts over property rights and natural-resource exploitation at the frontier," Journal of Development Economics, Elsevier, vol. 66(1), pages 1-21, October.
  4. Louis Hotte & Randy McFerrin & Douglas Wills, 2011. "On the Dual Nature of Weak Property Rights," Working Papers 1103E, University of Ottawa, Department of Economics.
  5. Helene Ollivier, 2012. "Growth, deforestation and the efficiency of the REDD mechanism," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00750718, HAL.
  6. 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.
  7. Henri Atangana ondoa, 2014. "The determinants of corporate corruption in Cameroon," Economics Bulletin, AccessEcon, vol. 34(2), pages 938-950.

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