The tragedy of the commons: property rights and markets as solutions to resource and environmental problems

In one way or another, all environmental and natural resource problems associated with overexploitation or under provision of public goods, arise from incompletely defined and enforced property rights. As a result private decision makers do not consider or internalize social benefits and costs in their production or investment actions. The gap between private and social net returns results in externalities – harmful effects on third parties: overfishing, excessive air pollution, unwarranted extraction or diversion of ground or surface water, extreme depletion of oil and gas reservoirs. These situations are all examples of the 'The Tragedy of the Commons'. In this paper, I consider options for mitigating the losses of open access: common or group property regimes, government tax and regulation policy, more formal private property rights. I briefly summarize the problems and advantages of each option and describe why there has been move toward rights-based instruments in recent years: ITQ (individual transferable quotas), tradable emission permits, and private water rights. Introductions to the papers in the special issue follow.     

The Effect of Cost Heterogeneity in the Success and Failure of the New Deal''s Agricultural and Industrial Programs

The Agricultural Adjustment Act and the National Industrial Recovery Act (NIRA) were cornerstones of the early New Deal, designed to cartelize agriculture and industry. When the Supreme Court annulled both acts, agricultural regulation was reinstalled within 6 weeks, following organized lobbying by farming interests, but broad industrial regulation was not reinstated. There was no corresponding lobby effort by industry to return the NIRA. To explain these differences we analyze the effect of farm/firm cost heterogeneities within commodity programs and industries on the ability of the parties to agree to and adhere to collusive regulations. We find that in the case of agriculture, because agricultural pricing and production policies were designed and implemented by low-cost producers, they were relatively self-enforcing and long-lasting. In contrast, high-cost firms in industry played a major role in setting prices and output within many of the NRA industrial codes. Consequently, these collusive policies were not self-enforcing and failed to create an effective lobby for their reinstatement.     

Efficient markets and great lakes timber: A conservation issue reexamined

“… the forest resource is one which, under the active competition of private enterprise, is apt to deteriorate … that the maintenance of continued supplies as well as of favorable conditions is possible only under the supervision of permanent institutions with whom present profit is not the only motive. It calls preeminently of the state to counteract the destructive tendencies of private exploitation.” (Bernhard E. Fernow, Chief, Division of Forestry, USDA, 1886, and drafter of 1891 legislation which established the National Forest Reserves. Economics of Forestry, New York: Crowell and Company, 1902, p. 20)     

The self-enforcing provisions of oil and gas unit operating agreements: theory and evidence

This article extends the existing theory and empirical investigationof unitization contracts. It highlights the importance of incentive-compatibilityand self-enforcement and the bargaining problems faced in achievingviable, long-term contracts. We argue that only if the partiesto a unitization contract have unit production shares that arethe same as their cost shares will the contract be incentivecompatible. Using a database of 60 unit operating agreements,we measure the industry's actual behavior against the principlesof production from a common pool. Our survey of units that haveonly one production phase and that are relatively homogeneousreveals that such equal sharing rules are always found and theyappear to encourage the parties to behave optimally. In morecomplex units with multiple production phases and/or separateconcentrations of oil and gas (gas caps) we find deviationsfrom the theoretical ideal. In the case of multiphase units,we find equal cost and production shares within phases, butnot across phases. A preset trigger for shifting from one productionphase to the next helps to maintain optimal behavior. For gascap units, however, we generally do not find the equal sharingrule. Conflicts and rent dissipation follow as illustrated bythe case of the Prudhoe Bay Unit. The article describes thedesirable contract rules for avoiding moral hazard. It alsoshows how the effects of those rules can be replicated in difficultsituations.     

Agricultural productivity,partible inheritance,and the demographic response to rural poverty: An examination of the Spanish southwest

The small-farm, or low-income, problem in New Mexico is acute. Of the 31,404 farms and ranches in the state in 1929, approximately 4,000, or about 13% of the total number, contained less than 10 acres per farm and 8,300, or 27%, contained less than 20 acres …. Especially is the small-farm, low-income problem acute in the north central part of the State where the Spanish-speaking people are concentrated, chiefly on the irrigated lands and where it has been the custom for some 300 years to divide family landholdings equally among the children upon the death of the parents.     

Information distortion and competitive remedies in government transfer programs: The case of ethanol

This paper reconsiders the analogy between competitive markets and the political process that is central to much of the literature on the efficiency of government transfers. The key problem is that property rights in politics are much less well defined than they are in competitive markets. As the paper outlines, obtaining accurate information about the benefits and costs of transfers is likely to be much more difficult than envisioned in the literature. Investigators, as well as general voters, often must rely on the government and competing parties for provision of information about underlying program parameters and functional relationships. We argue that politicians and the affected interest groups have incentives to limit and distort the information that is released to voters and that political competition is unlikely to be an effective counter. In developing the argument, a theoretical framework is provided and applied in a case study of the ethanol transfer. The documented efforts to disguise the actual costs and benefits of the program are important for gaining a broader understanding of the functioning and costs of government transfers in the economy.     

Property rights and the public trust doctrine in environmental protection and natural resource conservation*

We examine the implications of the public trust doctrine in natural resource protection and conservation. A model of litigation and settlement among disputing parties suggests that the public trust doctrine introduces more costs and is more time consuming than would be the case with alternative approaches, such as the purchase of private rights through market transactions or application of eminent domain powers to reallocate the resource. Because the doctrine allows for uncompensated redistribution, it is resisted by current resource owners. Furthermore, by providing open standing to members of the public in challenging existing uses, public trust disputes encourage excessive demands, increasing the incidence of trial over settlement. This outcome is exacerbated if the plaintiffs derive utility from the ‘cause’ and provide litigation services at below‐market rates, leading to greater investment in litigation. The costs of the public trust doctrine appear to have limited its application beyond the level anticipated by proponents. We present a case study of Mono Lake, part of the well‐known 1983 litigation, National Audubon v. Superior Court to illustrate our arguments.