Building Institutions to Manage Local Resources: An Empirical Investigation

The lack of well-defined property rights causes the Tragedy of the Commons. Transferring common property to local communities for management has become the primary prescription for eliminating the incentives driving the Tragedy. Building community institutions to manage local resources is a critical component of the recent emphasis on "sustainable development." Despite substantial theoretical consideration of indigenous community resource management, there is little empirical evidence on the efficacy of government initiated, community institutions. This paper uses variation in the timing of implementation of a massive institutional reform in Nepal to identify the impact of newly created community user groups on household forest use. Transferring forest property to local user groups substantially reduces household resource extraction.