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Commons as insurance and the welfare impact of privatization

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  • Baland, Jean-Marie
  • Francois, Patrick

Abstract

It is shown here that despite the efficiency gains from privatization, when markets are incomplete, all individuals may be made worse off by privatization, even when the resource is equitably privatized. Such market incompleteness is common in the developing world and can explain the often encountered resistance to efficiency enhancing privatizing reforms, especially in the case of village level landholdings and forests. The advantage of commonly held property arises because of its superior insurance properties (which tend to provide income maintenance in low states). Sufficient conditions are established under which any feasible insurance scheme under private property cannot ex ante Pareto dominate allocations under the commons.
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Suggested Citation

  • Baland, Jean-Marie & Francois, Patrick, 2005. "Commons as insurance and the welfare impact of privatization," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 211-231, February.
    • Handle: RePEc:eee:pubeco:v:89:y:2005:i:2-3:p:211-231
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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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