WEAI/AERE 2009 - Individual Paper Abstract
Title: Governing the Resource: Scarcity-Induced Institutional Change
Author(s): Nori TARUI, Department of Economics, University of Hawaii at Manoa, 2424 Maile Way, 542 Saunders Hall, Honolulu, HI 96822, USA, nori@hawaii.edu, 808-956-8427; James A. Roumasset, Department of Economics, University of Hawaii at Manoa
Abstract:
Copeland and Taylor ("Trade, Tragedy, and the Commons," forthcoming in AER) have provided a comparative institutional analysis wherein characteristics of a natural resource determine whether its steady-state management regime is open access with complete rent dissipation, private property or communal property. This paper provides a complementary model wherein the governance structure of a resource can change with resource depletion. Assuming that governance cost is increasing in the difference between open-access and the actual harvest, we show that open access can be optimal if the resource is abundant relative to its demand and/or if governance costs are high. Once open access is rendered inefficient due to increased resource scarcity, further depletion results in ever-increasing governance. This explains the co-evolution of the scarcity and property rights observed with many resources--from open access to common property and to private property.
While many natural resources are open access or common property, some are managed privately. In addition, each resource’s property right regime is not necessarily fixed over time. While many resources remain to be open access, some resources experience shifts in their property-right regimes as resource scarcity changes over time (e.g. the lobster fishery in Maine, rural land use in Switzerland, Germany, and Japan). The shift often occurs from open access to common property and private property. The literature on endogenous property right regimes explain why different resources may have different resource-use institutions (e.g. Demsetz 1967, Anderson and Hill 1975. 1983, 1990, Ostrom 1990, Lueck 2002, Copeland and Taylor 2004). They apply comparative statics (using either a static model or a dynamic model focusing on the steady state) to analyze what resource characteristics and economic conditions of harvested goods determine a resource’s property right regime. These studies provide important insights regarding what resource characteristics are associated with open access as opposed to common property or private property. However, few address how property right regimes for a particular resource may change over time as the resource scarcity changes. Building on the above literature of endogenous property rights, we develop a dynamic resource-use model that takes into account the cost of institutional change in order to address how governance of a resource evolves over time depending on resource scarcity and changes in the surrounding economic environment.