Trade, Tragedy, and the Commons

Many of the world’s major renewable resource stocks are in a state of decline. This is true for capture fisheries, for forests in developing countries, and for many measures of the biosphere’s health. Other renewable resources, including many species of wildlife, marine mammals, and Coral reefs, are also under threat. While poverty and government corruption are surely responsible for some of this record, particular emphasis is often placed on the potentially damaging role played by international trade. This emphasis is not surprising given that natural resource products are a key export for much of the developing world and property rights over renewable resources are both difficult to define and poorly enforced. But property rights are not an immutable country characteristic such as weather, mineral deposits, or topography; they are instead market institutions developed to facilitate transactions and protect scarce resources. Consequently, changes in prices, technology, and other effects of market integration may alter the de facto property rights regime and lead to impacts quite different from those predicted by existing analyses. The purpose of this paper is to examine renewable resource use within a framework where the enforcement of property rights, and hence the efficacy of resource management, is endogenously determined. We develop a theory where an existing government regulates the use of a renewable resource by a set of agents who have a right to harvest. The resource could be a fishery, forest stock, aquifer, etc., and we assume it is local and therefore contained within one country. The government sets rules limiting harvests but agents may cheat on these allocations and risk punishment. Property rights are endogenous in this framework because the government must account for agents’ incentive to cheat. As a result, the effective protection for the resource—or what we refer to as the de facto property rights regime—may be far from perfect, even though property rights would be perfectly enforced if there was no monitoring problem. Trade, Tragedy, and the Commons