The Classical Liberal Institute, New York University School of Law, Working Papers Series
38 Pages Posted: 14 Dec 2016
Date Written: December 13, 2016
In 2015, the U.S. Senate passed a budgetary amendment to privatize federal public land. If the House of Representatives follows suit, large swaths of public land may be broken into small and parcels sold to states and private parties. Received scholarly wisdom suggests that such privatization effectively mitigates the tragedy of the commons, resource exhaustion caused by users failing to internalize the costs of their uses. Yet, other scholars have suggested that privatization sometimes fragments property interests into too-small pieces, producing underuse of resources. To date, however, there is limited recognition that privatization creates over-fragmentation of severable property rights to resources which can only be efficiently managed at the landscape level, such as oil and gas or minerals. As a result, existing scholarship underestimates the second-order transaction costs associated with privatization, understates the importance of initial entitlements, and fails to account for the subsidizing effects of public land.
We fill the theoretical gap between privatization and fragmentation by providing a model demonstrating that dividing land according to an efficient scale of management for one resource produces inefficient scales of management for other resources. To maximize secondary resources, resource users must assemble severable resource rights into efficiently-sized ownership bundles with boundaries differing from land parcels — a process we term “virtual parceling.” Thus, each geographic land unit contains multiple systems of parcels – recorded land parcels and overlapping virtual parcels for resources ranging from oil and gas development to wildlife habitat. This gives rise a spatial version of the distinction between de facto property rights that shape economic behavior and de jure property rights that correspond to written law. Virtual parcels constitute de facto property rights that operate on larger spatial scale than the de jure property rights associated with title to land.
Keywords: natural resources, property rights, resource economics
Suggested Citation: Suggested Citation