Property Rights, Regulatory Capture, and Exploitation of Natural Resources

Christopher Costello and Corbett Grainger

Journal of the Association of Environmental and Resource Economists, 2018, vol. 5, issue 2, 441 - 479

Abstract: We study how the strength of property rights to individual extractive firms affects a regulator’s choice over exploitation rates for a natural resource. The regulator is modeled as an intermediary between current and future resource harvesters rather than between producers and consumers, as in the traditional regulatory capture paradigm. When incumbent resource users have weak property rights, they have an incentive to pressure the regulator to allow resource extraction at an inefficiently rapid rate. The main theoretical prediction—that stronger individual property rights will lead the regulator to choose more economically efficient extraction paths—is tested empirically with novel panel data from global fisheries. Exploiting the variation in timing of Catch Share implementation, as well as employing an instrumental variables strategy, we find that regulators are significantly more conservative in managing resources for which firms have strong property rights; this is especially pronounced for resources that have been historically overexploited.

Date: 2018
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Working Paper: Property Rights, Regulatory Capture, and Exploitation of Natural Resources (2015)
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