Property Rights, Regulatory Capture, and Exploitation of Natural Resources

32 Pages Posted: 20 Jan 2015

See all articles by Christopher Costello

Christopher Costello

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management

Corbett A. Grainger

University of Wisconsin - Madison

Date Written: January 2015

Abstract

We study how the strength of property rights to individual extractive firms affects a regulator’s choice over exploitation rates for a natural resource. The regulator is modeled as an intermediary between current and future resource harvesters, rather than between producers and consumers, as in the traditional regulatory capture paradigm. When incumbent resource users have weak property rights, they have an incentive to pressure the regulator to allow resource extraction at an inefficiently rapid rate. In contrast, when property rights are strong, this incentive is minimized or eliminated. We build a theoretical model in which different property right institutions can be compared for their incentives to exert influence on the regulator. The main theoretical prediction - that stronger individual property rights will lead the regulator to choose more economically efficient extraction paths - is tested empirically with a novel panel data set from global fisheries. Exploiting the variation in timing of catch share implementation in our panel data, we find that regulators are significantly more conservative in managing resources for which strong individual property rights have been assigned to firms; this is especially pronounced for resources that have been overexploited historically.

Suggested Citation

Costello, Christopher and Grainger, Corbett Alden, Property Rights, Regulatory Capture, and Exploitation of Natural Resources (January 2015). NBER Working Paper No. w20859. Available at SSRN: https://ssrn.com/abstract=2551667

Christopher Costello (Contact Author)

University of California, Santa Barbara (UCSB) - Donald Bren School of Environmental Science & Management ( email )

4670 Physical Sciences North
Santa Barbara, CA 93106-5131
United States
(805) 893-5802 (Phone)
(805) 893-7612 (Fax)

Corbett Alden Grainger

University of Wisconsin - Madison ( email )

427 Lorch St.
Madison, WI 53706-1503
United States

HOME PAGE: http://www.aae.wisc.edu/cagrainger

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