Natural-Resource Exploitation with Costly Enforcement of Property Rights

U of Namur, Research Series Working Paper No. 234

30 Pages Posted: 12 Apr 2002

Multiple version iconThere are 2 versions of this paper

Date Written: March 2002

Abstract

This paper proposes a model of natural-resource exploitation when private ownership requires costly enforcement activities. Enforcement costs are endogenized as the outcome of a game between the owner of a resource and encroachers. In equilibrium, the analysis suggests that in order to deter encroachment, two instruments are available for the owner: she can either devote more efforts in directly enforcing her property rights, or she can purposefully "overexploit" the resource as a means of lowering the returns from encroachment activities. The latter instrument implies that, even with the institution of private property, the marginal social yield of a resource worker may be below the value of his marginal product in alternative employment. Conditions are found for which at low wage rates, further wage reductions actually lower profits. These conditions turn out to be necessary and sufficient for the existence of a range of low wages characterized by a free-access equilibrium. This provides some clues as to why free access may be more prevalent in less-developed countries for certain types of resources. It is also shown that an increase in resource price cannot lead an owner to abandon his site to a free-access exploitation.

Keywords: property rights, free access, enforcement costs, natural resources, income levels, economic development, economics of crime, illegal labor

JEL Classification: D23, K42, O13, Q20

Suggested Citation

Hotte, Louis, Natural-Resource Exploitation with Costly Enforcement of Property Rights (March 2002). U of Namur, Research Series Working Paper No. 234. Available at SSRN: https://ssrn.com/abstract=306259 or http://dx.doi.org/10.2139/ssrn.306259

Louis Hotte (Contact Author)

University of Ottawa ( email )

Department of Economics
55 Laurier E.
Ottawa, Ontario K1N 6N5
Canada
+161 356 25800 1692 (Phone)
+161 356 25999 (Fax)

HOME PAGE: http://aix1.uottawa.ca/~lhott3/

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