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Water Externalities: Tragedy of the Common Canal

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  • Charles A. Holt
  • Cathleen A. Johnson
  • Courtney A. Mallow
  • Sean P. Sullivan

Abstract

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.

Suggested Citation

  • Charles A. Holt & Cathleen A. Johnson & Courtney A. Mallow & Sean P. Sullivan, 2012. "Water Externalities: Tragedy of the Common Canal," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1142-1162, April.
    • Handle: RePEc:wly:soecon:v:78:y:2012:i:4:p:1142-1162
    DOI: 10.4284/0038-4038-78.4.1142
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    References listed on IDEAS

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    2. Charles A. Holt & Sean P. Sullivan, 2023. "Permutation tests for experimental data," Experimental Economics, Springer;Economic Science Association, vol. 26(4), pages 775-812, September.

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