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Income distributional effects of using market-based instruments for managing common property resources

  • Siwa Msangi
  • Richard E. Howitt

In this article, the authors show the trade-offs between efficiency and equity that arise from the application of market-based instruments to a heterogenous population of agents drawing from a natural resource pool. Using the example of groundwater, they find that there are overall losses in allocative efficiency when the centralized planner is constrained by equity considerations, and that the distribution of gains or losses to management becomes skewed asymmetrically across agents. These results demonstrate the importance of considering both efficiency gains and disparities in distributional inequity, when designing policy instruments that create winners and losers with potentially serious sociopolitical ramifications. Copyright 2007 International Association of Agricultural Economists.

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Article provided by International Association of Agricultural Economists in its journal Agricultural Economics.

Volume (Year): 37 (2007)
Issue (Month): s1 (December)
Pages: 249-259

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Handle: RePEc:bla:agecon:v:37:y:2007:i:s1:p:249-259
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  1. Kim, C. S. & Moore, Michael R. & Hanchar, John J. & Nieswiadomy, Michael, 1989. "A dynamic model of adaptation to resource depletion: theory and an application to groundwater mining," Journal of Environmental Economics and Management, Elsevier, vol. 17(1), pages 66-82, July.
  2. Feinerman, Eli, 1988. "Groundwater Management: Efficiency and Equity Considerations," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 2(1), June.
  3. Knapp Keith C. & Olson Lars J., 1995. "The Economics of Conjunctive Groundwater Management with Stochastic Surface Supplies," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 340-356, May.
  4. Feinerman, Eli, 1988. "Groundwater management: Efficiency and equity considerations," Agricultural Economics, Blackwell, vol. 2(1), pages 1-18, June.
  5. T. Takayama & G. G. Judge, 1964. "Spatial Equilibrium and Quadratic Programming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 46(1), pages 67-93.
  6. Joseph Farrell., 1987. "Information and the Coase Theorem," Economics Working Papers 8747, University of California at Berkeley.
  7. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62, pages 124.
  8. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
  9. James J. Murphy & Ariel Dinar & Richard E. Howitt & Erin Mastrangelo & Stephen J. Rassenti & Vernon L. Smith, 2006. "Mechanisms for Addressing Third-Party Impacts Resulting From Voluntary Water Transfers," Chapters, in: Using Experimental Methods in Environmental and Resource Economics, chapter 5 Edward Elgar.
  10. McGartland, Albert M. & Oates, Wallace E., 1985. "Marketable permits for the prevention of environmental deterioration," Journal of Environmental Economics and Management, Elsevier, vol. 12(3), pages 207-228, September.
  11. Tsur, Yacov & Dinar, Ariel, 1995. "Efficiency and equity considerations in pricing and allocating irrigation water," Policy Research Working Paper Series 1460, The World Bank.
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