Endogenous first-possession property rights in open-access resources

Bryan Leonard, Gary D. Libecap

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This Essay examines the emergence of spontaneous claims to inframarginal rents in open-access resources. Although early models of openaccess in economics predicted full rent dissipation as homogeneous agents exploited the resource, later theory and empirical observations indicated persistence of inframarginal rents. The existence of inframarginal rents under open-access has been recognized in the literature, but agents incentives to invest in de facto institutions to protect rental streams from competitors has not been explored. These institutions include local property rights, specialized production, and restricted information sharing. Moreover, there has been no recognition of how these informal arrangements might contribute to observed resistance by inframarginal-rent earners to externally imposed schemes in order to reduce aggregate rent dissipation. Proponents are high-cost agents, who earn low or zero rents. High-cost agents ought to be able to compensate low-cost agents for a shift to a new property regime if the shift makes them better off than they were under open-access. Empirically, however, this appears not to happen and formal open-access persists. This Essay develops a simple framework to show why "willingness to pay" and "willingness to accept" do not overlap and that institutional change is not Pareto-improving for those who have adjusted well to open-access. If agents are heterogeneous in search and production costs, and the resource is large and heterogeneous in quality, then low-cost parties search for the most productive locations and apply their superior skills and develop human and physical capital to earn inframarginal rents. The Essay then applies this framework to historical experiences in oil and gas and fisheries.

Original languageEnglish (US)
Pages (from-to)2457-2478
Number of pages22
JournalIowa Law Review
Volume100
Issue number6
StatePublished - Aug 1 2015
Externally publishedYes

Fingerprint

open access
right of ownership
possession
rent
resources
costs
production costs
willingness to pay
institutional change
fishery
persistence
incentive
regime
economics

ASJC Scopus subject areas

  • Law

Cite this

Endogenous first-possession property rights in open-access resources. / Leonard, Bryan; Libecap, Gary D.

In: Iowa Law Review, Vol. 100, No. 6, 01.08.2015, p. 2457-2478.

Research output: Contribution to journalArticle

Leonard, Bryan ; Libecap, Gary D. / Endogenous first-possession property rights in open-access resources. In: Iowa Law Review. 2015 ; Vol. 100, No. 6. pp. 2457-2478.
@article{7b3d9593e46d464ba72680f178532f4e,
title = "Endogenous first-possession property rights in open-access resources",
abstract = "This Essay examines the emergence of spontaneous claims to inframarginal rents in open-access resources. Although early models of openaccess in economics predicted full rent dissipation as homogeneous agents exploited the resource, later theory and empirical observations indicated persistence of inframarginal rents. The existence of inframarginal rents under open-access has been recognized in the literature, but agents incentives to invest in de facto institutions to protect rental streams from competitors has not been explored. These institutions include local property rights, specialized production, and restricted information sharing. Moreover, there has been no recognition of how these informal arrangements might contribute to observed resistance by inframarginal-rent earners to externally imposed schemes in order to reduce aggregate rent dissipation. Proponents are high-cost agents, who earn low or zero rents. High-cost agents ought to be able to compensate low-cost agents for a shift to a new property regime if the shift makes them better off than they were under open-access. Empirically, however, this appears not to happen and formal open-access persists. This Essay develops a simple framework to show why {"}willingness to pay{"} and {"}willingness to accept{"} do not overlap and that institutional change is not Pareto-improving for those who have adjusted well to open-access. If agents are heterogeneous in search and production costs, and the resource is large and heterogeneous in quality, then low-cost parties search for the most productive locations and apply their superior skills and develop human and physical capital to earn inframarginal rents. The Essay then applies this framework to historical experiences in oil and gas and fisheries.",
author = "Bryan Leonard and Libecap, {Gary D.}",
year = "2015",
month = "8",
day = "1",
language = "English (US)",
volume = "100",
pages = "2457--2478",
journal = "Iowa Law Review",
issn = "0021-0552",
publisher = "University of Iowa",
number = "6",

}

TY - JOUR

T1 - Endogenous first-possession property rights in open-access resources

AU - Leonard, Bryan

AU - Libecap, Gary D.

PY - 2015/8/1

Y1 - 2015/8/1

N2 - This Essay examines the emergence of spontaneous claims to inframarginal rents in open-access resources. Although early models of openaccess in economics predicted full rent dissipation as homogeneous agents exploited the resource, later theory and empirical observations indicated persistence of inframarginal rents. The existence of inframarginal rents under open-access has been recognized in the literature, but agents incentives to invest in de facto institutions to protect rental streams from competitors has not been explored. These institutions include local property rights, specialized production, and restricted information sharing. Moreover, there has been no recognition of how these informal arrangements might contribute to observed resistance by inframarginal-rent earners to externally imposed schemes in order to reduce aggregate rent dissipation. Proponents are high-cost agents, who earn low or zero rents. High-cost agents ought to be able to compensate low-cost agents for a shift to a new property regime if the shift makes them better off than they were under open-access. Empirically, however, this appears not to happen and formal open-access persists. This Essay develops a simple framework to show why "willingness to pay" and "willingness to accept" do not overlap and that institutional change is not Pareto-improving for those who have adjusted well to open-access. If agents are heterogeneous in search and production costs, and the resource is large and heterogeneous in quality, then low-cost parties search for the most productive locations and apply their superior skills and develop human and physical capital to earn inframarginal rents. The Essay then applies this framework to historical experiences in oil and gas and fisheries.

AB - This Essay examines the emergence of spontaneous claims to inframarginal rents in open-access resources. Although early models of openaccess in economics predicted full rent dissipation as homogeneous agents exploited the resource, later theory and empirical observations indicated persistence of inframarginal rents. The existence of inframarginal rents under open-access has been recognized in the literature, but agents incentives to invest in de facto institutions to protect rental streams from competitors has not been explored. These institutions include local property rights, specialized production, and restricted information sharing. Moreover, there has been no recognition of how these informal arrangements might contribute to observed resistance by inframarginal-rent earners to externally imposed schemes in order to reduce aggregate rent dissipation. Proponents are high-cost agents, who earn low or zero rents. High-cost agents ought to be able to compensate low-cost agents for a shift to a new property regime if the shift makes them better off than they were under open-access. Empirically, however, this appears not to happen and formal open-access persists. This Essay develops a simple framework to show why "willingness to pay" and "willingness to accept" do not overlap and that institutional change is not Pareto-improving for those who have adjusted well to open-access. If agents are heterogeneous in search and production costs, and the resource is large and heterogeneous in quality, then low-cost parties search for the most productive locations and apply their superior skills and develop human and physical capital to earn inframarginal rents. The Essay then applies this framework to historical experiences in oil and gas and fisheries.

UR - http://www.scopus.com/inward/record.url?scp=84941661793&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84941661793&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:84941661793

VL - 100

SP - 2457

EP - 2478

JO - Iowa Law Review

JF - Iowa Law Review

SN - 0021-0552

IS - 6

ER -