Endogenous Property Rights Regimes, Common Property Resources and Trade Policies

Abstract

International clamor regarding the potential degradation of the environment in developing countries due to opening to trade has been an important issue that has moved from the streets into academic studies. This dissertation links the effect of opening to trade on resource stocks in developing countries by endogenizing the property rights regime choice. The model explains how communities that have communal ownership of a resource stock select the property rights regime governing the use of their resource stock via a voting mechanism. Then, the impact of opening to trade is linked to the choice of the property rights regime and, ultimately, to stock changes over time.

We found that under some plausible assumptions, community members would vote to allow non-community members into the resource sector. Opening to trade, when the country has comparative advantage in the production of resource intensive goods, does result in a decrease in the long-run equilibrium stock. However, as long as property rights regimes are endogenous and the country follows the optimal trajectory path, we find that degrading the resource stock can be an optimal solution.

A dynamic common property resource game with two sectors in the economy was designed and implemented to test some of the theoretical results. Experimental results indicated that subjects followed a dynamic path, but not the optimal one. The initial choices of the subjects greatly influenced the path which they take in the future. Without instruments or tools to correct for mistakes made during the initial time periods, communities will most likely follow a non-optimal dynamic path.