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Water Externalities: Tragedy of the Common Canal

  • Charles A. Holt

    ()

    (Department of Economics, University of Virginia, 237 Monroe Hall, Charlottesville, VA 22904-4182, USA)

  • Cathleen A. Johnson

    ()

    (BASIS Educational Group, 1715 E, Skyline Drive, Suite 121, Tucson, AZ 85718, USA)

  • Courtney A. Mallow

    ()

    (Chemonics, 1717 H Street, NW, Washington, DC 20006, USA)

  • Sean P. Sullivan

    ()

    (Department of Economics & School of Law, University of Virginia, 237 Monroe Hall, Charlottesville, VA 22904-4182, USA; corresponding author)

Laboratory experiments are used to investigate alternative solutions to the allocation problem of a common-pool resource with unidirectional flow. Focus is on the comparative economic efficiency of nonbinding communications, bilateral “Coasian” bargaining, allocation by auction, and allocation by exogenous usage fee. All solutions improve allocative efficiency, but communication and bilateral bargaining are not generally as effective as market allocations. An exogenously imposed optimal fee results in the greatest allocative efficiency, closely followed by an auction allocation that determines the usage fee endogenously.

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File URL: http://dx.doi.org/10.4284/0038-4038-78.4.1142
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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2012)
Issue (Month): 4 (April)
Pages: 1142-1162

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Handle: RePEc:sej:ancoec:v:78:4:y:2012:p:1142-1162
Contact details of provider: Web page: http://www.southerneconomic.org/

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