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How Transaction Costs Obstruct Collective Action: Evidence from California’s Groundwater

Listed author(s):
  • Andrew B. Ayres
  • Eric C. Edwards
  • Gary D. Libecap

Collective action to remedy the losses of open access to common-pool resources often is late and incomplete, extending rent dissipation. Examples include persistent over-exploitation of oil fields and ocean fisheries, despite general agreement that production constraints are needed. Transaction costs encountered in assigning property rights are an explanation, but analysis of their role is limited by a lack of systematic data. We examine governance institutions in California’s 445 groundwater basins using a new dataset to identify factors that influence the adoption of extraction controls. In 309 basins, institutions allow unconstrained pumping, while an additional 105 basins have weak management plans. Twenty of these basins are severely overdrafted. Meanwhile, users in 31 basins have defined groundwater property rights, the most complete solution. We document the critical role of transaction costs in explaining this variation in responses. This research adds to the literatures on open access, transaction costs, bargaining, and property rights

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23382.

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Date of creation: May 2017
Handle: RePEc:nbr:nberwo:23382
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  1. Zekri, Slim, 2008. "Using economic incentives and regulations to reduce seawater intrusion in the Batinah coastal area of Oman," Agricultural Water Management, Elsevier, vol. 95(3), pages 243-252, March.
  2. Wiggins, Steven N & Libecap, Gary D, 1985. "Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information," American Economic Review, American Economic Association, vol. 75(3), pages 368-385, June.
  3. Bhim Adhikari & Jon Lovett, 2006. "Institutions and collective action: Does heterogeneity matter in community-based resource management?," Journal of Development Studies, Taylor & Francis Journals, vol. 42(3), pages 426-445.
  4. Wiggins, Steven N & Libecap, Gary D, 1987. "Firm Heterogeneities and Cartelization Efforts in Domestic Crude Oil," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(1), pages 1-25, Spring.
  5. Johnson, Ronald N & Libecap, Gary D, 1982. "Contracting Problems and Regulation: The Case of the Fishery," American Economic Review, American Economic Association, vol. 72(5), pages 1005-1022, December.
  6. Gary D. Libecap & James L. Smith, 2001. "Regulatory Remedies to the Common Pool: The Limits to Oil Field Unitization," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-26.
  7. Libecap, Gary D & Smith, James L, 1999. "The Self-Enforcing Provisions of Oil and Gas Unit Operating Agreements: Theory and Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 526-548, July.
  8. Ruttan, Lore M., 2008. "Economic Heterogeneity and the Commons: Effects on Collective Action and Collective Goods Provisioning," World Development, Elsevier, vol. 36(5), pages 969-985, May.
  9. Libecap, Gary D & Wiggins, Steven N, 1984. "Contractual Responses to the Common Pool: Prorationing of Crude Oil Production," American Economic Review, American Economic Association, vol. 74(1), pages 87-98, March.
  10. Brozovic, Nicholas & Sunding, David L. & Zilberman, David, 2010. "On the spatial nature of the groundwater pumping externality," Resource and Energy Economics, Elsevier, vol. 32(2), pages 154-164, April.
  11. Eric C. Edwards, 2016. "What Lies Beneath? Aquifer Heterogeneity and the Economics of Groundwater Management," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(2), pages 453-491.
  12. Kuwayama, Yusuke & Brozović, Nicholas, 2013. "The regulation of a spatially heterogeneous externality: Tradable groundwater permits to protect streams," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 364-382.
  13. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62, pages 124-124.
  14. Guilfoos, Todd & Pape, Andreas D. & Khanna, Neha & Salvage, Karen, 2013. "Groundwater management: The effect of water flows on welfare gains," Ecological Economics, Elsevier, vol. 95(C), pages 31-40.
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