RESOURCE DYNAMICS AND ENDOGENOUS PROPERTY RIGHTS REGIMES

Ngo Van Long () and Huilan Tian

Departmental Working Papers from McGill University, Department of Economics

Abstract: Several authors have shown that the opening of trade may be harmful if natural resources are exploited under the open-access regime. These authors assume that property rights regimes are exogenously given, and are the same before and after the opening of trade. In this paper, we model the endogenous evolution of property rights regimes, with resource dynamics, and explore the impact of trade on property rights regimes and on welfare. The model takes into account the dynamics of the stocks of natural resources, and the effect of trade on resource utilization. We show that the opening of trade can change the property rights regime of an economy; for example, the open access to resource stocks may be eliminated after the opening of trade. Such changes may lead to a greater steady-state stock level of resources. However these changes are not always beneficial to society when one takes into account enforcement costs; in fact, property owners' profit maximization decisions may result in higher profits but lower net national income. Thus the opening of trade can be harmful when property rights regimes axe endogenous.

Pages: 27 pages
Date: 1998-09
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Persistent link: https://EconPapers.repec.org/RePEc:mcl:mclwop:1998-02

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