The Effects of Neighboring Parties on the Value of Rights: Evidence from Timber Harvests

GMU Working Paper in Economics No. 21-25

Southern Economic Journal, Vol. 88, Issue 2

64 Pages Posted: 27 Aug 2021 Last revised: 29 Oct 2021

See all articles by Colin Doran

Colin Doran

George Mason University - Department of Economics

Thomas Stratmann

George Mason University - Buchanan Center Political Economy; George Mason University - Mercatus Center; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 25, 2021

Abstract

We study the effect that neighboring parties have on the economic rents from owing the rights to a natural resource. Our application uses winning bid prices from state timber auctions in three western states. We model and show how differing nearby neighbors increase the costs and risks associated with purchasing certain rights. Consistent with our hypotheses, the winning bid price of state-run timber auctions is inversely related to the length of the border that a third party shares with the harvesting area. The lower winning bid prices reflect an increase in the expected costs of protecting the rents due to the presence of potential third parties’ challenges to property rights. We further test our model when there is third party demand for other uses to the timber such as a scenic view. The results consistently show that when third parties potentially threaten property rights, the winning bid decreases.

Keywords: Property Rights, Economic Rents, Resource Use, Public Lands

JEL Classification: D02, K11

Suggested Citation

Doran, Colin and Stratmann, Thomas, The Effects of Neighboring Parties on the Value of Rights: Evidence from Timber Harvests (August 25, 2021). GMU Working Paper in Economics No. 21-25, Southern Economic Journal, Vol. 88, Issue 2, Available at SSRN: https://ssrn.com/abstract=3911453 or http://dx.doi.org/10.2139/ssrn.3911453

Colin Doran (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Thomas Stratmann

George Mason University - Buchanan Center Political Economy ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://www.mercatus.org/scholars/thomas-stratmann

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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