Natural Resource Federalism: Preferences Versus Connectivity for Patchy Resources
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We examine the efficiency of centralized versus decentralized management of spatially-connected renewable resources when users have heterogeneous preferences for conservation versus extraction. Resource mobility induces a spatial externality, while spatial preference heterogeneity drives a wedge between users’ privately optimal extraction rates. We first address these market failures analytically and show that the first is most efficiently handled with centralized planning while the second is best tackled with decentralized management. Except in special cases, neither approach will be first best, but which arises as second best depends on the relative strength of preference heterogeneity versus spatial mobility of the resource. We illustrate the theory, and test its robustness, with a numerical example.
KeywordsRenewable resources Federalism Spatial externalities Property rights
We thank participants at the 15th Occasional California Workshop on Environmental and Natural Resource Economics (UCSB), seminar participants at Colorado State University, and the 2016 Payne Institute Conference for useful comments. We acknowledge the financial support of the Waitt Foundation and the PERC Lone Mountain Fellowship. This research benefitted from helpful conversations with the Environmental Defense Fund, where Costello serves as a trustee.
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