Natural resource use under limited-tenure property rights Christopher Costello Daniel Kaffine November 1, 2007 Forthcoming: Journal of Environmental Economics & Management

Research Focus If resource ownership is insecure…  What is the effect on resource use?  Implications for contract design? Does introducing insecurity negate the benefits of property rights?

“Limited Tenure Concession”  Regulators grant tenure over natural resources to private appropriators – a “concession” –Sets the length and terms of the contract –Regulator plays no role in resource use decisions  Common Features of real-world concessions –Finite time period (1-30 years is typical) –Renewal possible (but not certain!) at end of tenure, conditional on ‘good’ management –The possibility of non-renewal implies incomplete property rights

Key Trade-off  Foregoing harvest of a renewable resource is an investment in the future  For harvesters to make an investment (i.e. not overharvest), they need security about their future ownership of the resource

Tenure Length and Renewal Probability

Example: Baja Fishery  20-year concessions for Spiny Lobster and Abalone began in 1936 for 26 community co-ops Spiny Lobster Abalone Fishermen Spiny Lobster Abalone Fishermen  Identical institutions, vastly different outcomes for the two species

Abalone Lobster Rough estimate of Contract parameters Tenure Length and Renewal Probability Frontier for Spiny Lobster and Abalone

Summary 1.Can we achieve economically efficient harvest under an insecure property right? A.Economically efficient harvest can be achieved, even for an insecure property right

Summary 2.What contract parameters induce efficiency? A.- Setting renewal target appropriately - Longer tenure length - High renewal probability

Summary 3.Do insights help explain real-world phenomena? A.Tenure for slow-growing resources (such as abalone) may be insufficient to avoid overharvesting

Summary  Attempts by governments to maintain control over natural resources through renewable contracts may lead to the overexploitation they are trying to avoid  Nonetheless, renewable contracts can be designed to achieve economically efficient outcomes