Advances in New Institutional Analysis series
Edited by Claude Ménard and Michel Ghertman
Chapter 2: Property Rights Allocation of Common Pool Resources
Gary D. Libecap INTRODUCTION Command and control regulation typically has been the first formal government response to mitigate the losses of the common pool.1 Dissatisfaction with the subsequent performance of regulation, however, has resulted in a search for alternative institutional responses, including deregulation and the corresponding assignment of property rights of some type as part of market-based reforms.2 For instance, Tietenberg (2007: 69) reported that tradable use permits were now used in nine applications in air pollution control, seventy-five in fisheries, three in water and five in land use control that previously had been regulated. Property rights approaches offer more flexibility, cost savings, information generation, migration to high-valued uses, and better alignment of incentives for conservation or investment in the resource. The more complete are property rights, the more the private and social net benefits of resource use are meshed, eliminating externalities and the losses of the common pool.3 By contrast, centralized regulation relies more upon uniform standards, arbitrary controls on access, constraints on timing of use, and/or limits on technology or production capital, and hence, suffers from high cost, inflexibility, ineffectiveness and industry capture. Further, regulatory decisions take place in the absence of information about alternative uses that market trades generate. Finally, centralized state regulatory rules may or may not align with the incentives of actual users of the resource. Generally, no party involved – actual users, regulators, politicians – is a residual claimant to the social gains from investment or trade.4 Deregulation through the use of property rights, however, requires...
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