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Property Rights, Regulatory Capture, and Exploitation of Natural Resources

Christopher Costello () and Corbett Grainger

No 20859, NBER Working Papers from National Bureau of Economic Research, Inc

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. In contrast, when property rights are strong, this incentive is minimized or eliminated. We build a theoretical model in which different property right institutions can be compared for their incentives to exert influence on the regulator. The main theoretical prediction - that stronger individual property rights will lead the regulator to choose more economically efficient extraction paths - is tested empirically with a novel panel data set from global fisheries. Exploiting the variation in timing of catch share implementation in our panel data, we find that regulators are significantly more conservative in managing resources for which strong individual property rights have been assigned to firms; this is especially pronounced for resources that have been overexploited historically.

JEL-codes: H23 H41 L2 Q2 Q22 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-ene, nep-reg and nep-res
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Published as Christopher Costello & Corbett A. Grainger, 2018. "Property Rights, Regulatory Capture, and Exploitation of Natural Resources," Journal of the Association of Environmental and Resource Economists, vol 5(2), pages 441-479.

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