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Natural-resource exploitation with costly enforcement of property rights

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  • Louis Hotte

Abstract

A model of resource exploitation when private ownership requires costly enforcement is developed. Enforcement costs are endogenized as the outcome of a game between a resource owner and illegal extractors. I find that two instruments are used to deter illegal extraction: policing efforts and purposeful 'overexploitation' of the resource. The latter works by reducing the returns from illegal activities. Hence, even with private ownership, the marginal product of a resource worker may be below his marginal product in alternative employment. Conditions are found for which at low wage rates, further wage reductions lower profits. Those conditions are necessary and sufficient for the existence of a range of low wages characterized by a free-access equilibrium. This may explain the more frequent prevalence of free access in less-developed countries. I show that higher resource prices will not lead to more free-access, but may lead to 'value destruction'. Copyright 2005, Oxford University Press.

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  • Louis Hotte, 2005. "Natural-resource exploitation with costly enforcement of property rights," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 497-521, July.
  • Handle: RePEc:oup:oxecpp:v:57:y:2005:i:3:p:497-521
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    File URL: http://hdl.handle.net/10.1093/oep/gpi020
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    Cited by:

    1. Max Iván Aladave Ruiz & Cecilia Garcìa-Peñalosa, 2008. "Education, Corruption and the Natural Resource Curse," Working Papers halshs-00340997, HAL.
    2. van der Ploeg, Frederick & Rohner, Dominic, 2012. "War and natural resource exploitation," European Economic Review, Elsevier, vol. 56(8), pages 1714-1729.
    3. Ollivier, Hélène, 2012. "Growth, deforestation and the efficiency of the REDD mechanism," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 312-327.
    4. 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.
    5. 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.
    6. Henri Atangana ondoa, 2014. "The determinants of corporate corruption in Cameroon," Economics Bulletin, AccessEcon, vol. 34(2), pages 938-950.
    7. Hotte, Louis & McFerrin, Randy & Wills, Douglas, 2013. "On the dual nature of weak property rights," Resource and Energy Economics, Elsevier, vol. 35(4), pages 659-678.

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