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The Public Resource Management Game

Author

Listed:
  • Myles J. Watts
  • Jennifer L. Steele
  • Jay P. Shimshack
  • Jeffrey T. LaFrance

Abstract

Use of public resources for private economic gain is a longstanding, contested political issue. Public resources generate benefits beyond commodity uses, including recreation, environmental and ecological conservation and preservation, and existence and aesthetic values. We analyze this problem using a dynamic resource use game. Low use fees let commodity users capture more of the marginal benefit from private use. This increases the incentive to comply with government regulations. Optimal contracts therefore include public use fees that are lower than private rates. The optimal policy also includes random monitoring to prevent strategic learning and cheating on the use agreements and to avoid wasteful efforts to disguise noncompliant behavior. An optimal policy also includes a penalty for cheating beyond terminating the use contract. This penalty must be large enough that the commodity user who would gain the most from noncompliance experiences a negative expected net return.

Suggested Citation

  • Myles J. Watts & Jennifer L. Steele & Jay P. Shimshack & Jeffrey T. LaFrance, 2011. "The Public Resource Management Game," Monash Economics Working Papers 29-11, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2011-29
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/2911thepublicresourcelafrance.pdf
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    References listed on IDEAS

    as
    1. Li, Luning, 1994. "A counterexample to a conjecture on order statistics," Statistics & Probability Letters, Elsevier, vol. 19(2), pages 129-130, January.
    2. LaFrance, Jeffrey T. & Barney, L. Dwayne, 1991. "The envelope theorem in dynamic optimization," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 355-385, April.
    3. Johnson, Ronald N. & Watts, Myles J., 1989. "Contractual stipulations, resource use, and interest groups: Implications from federal grazing contracts," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 87-96, January.
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    Keywords

    Renewable resources; public resources policy; optimal contracts;

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