Environmental and Resource Economics

, Volume 71, Issue 1, pp 99–126 | Cite as

Natural Resource Federalism: Preferences Versus Connectivity for Patchy Resources

  • Christopher Costello
  • Daniel KaffineEmail author


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.


Renewable 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.


  1. Alberini A, Kahn JR (2009) Handbook on contingent valuation. Edward Elgar Publishing, CheltenhamGoogle Scholar
  2. Alm J, Banzhaf HS (2012) Designing economic instruments for the environment in a decentralized fiscal system. J Econ Surv 26(2):177–202CrossRefGoogle Scholar
  3. Anderson TL, Leal DR (1991) Free market environmentalism. Pacific Research Institute for Public Policy, San FranciscoGoogle Scholar
  4. Arnason R (2009) Conflicting uses of marine resources: can ITQs promote an efficient solution? Aust J Agric Resour Econ 53:145–174CrossRefGoogle Scholar
  5. Besley T, Coate S (2003) Centralized versus decentralized provision of local public goods: a political economy approach. J Publ Econ 87(12):2611–2637CrossRefGoogle Scholar
  6. Bhat M, Huffaker R (2007) Management of a transboundary wildlife population: A self-enforcing cooperative agreement with renegotiation and variable transfer payments. J Environ Econ Manag 53(1):54–67CrossRefGoogle Scholar
  7. Brown G, Roughgarden J (1997) A metapopulation model with private property and a common pool. Ecol Econ 22(1):65–71CrossRefGoogle Scholar
  8. Cancino JP, Uchida H, Wilen JE (2007) TURFs and ITQs: collective vs. individual decision making. Mar Resour Econ 22:391–406CrossRefGoogle Scholar
  9. Carson RT, Flores NE, Meade NF (2001) Contingent valuation: controversies and evidence. Environ Resour Econ 19(2):173–210CrossRefGoogle Scholar
  10. Clark C (1990) Mathematical bioeconomics. Wiley, New YorkGoogle Scholar
  11. Costello C, Quérou N, Tomini A (2015) Partial enclosure of the commons. J Publ Econ 121:69–78CrossRefGoogle Scholar
  12. Costello C, Polasky S (2008) Optimal harvesting of stochastic spatial resources. J Environ Econ Manag 56(1):1–18CrossRefGoogle Scholar
  13. Eichner T, Runkel M (2012) Interjurisdictional spillovers, decentralized policymaking, and the elasticity of capital supply. Am Econ Rev 102(5):2349–2357CrossRefGoogle Scholar
  14. Falkinger J (1996) Efficient private provision of public goods by rewarding deviations from average. J Publ Econ 62(3):413–422CrossRefGoogle Scholar
  15. Falkinger J, Fehr E, Gächter S, Winter-Ebmer R (2000) A simple mechanism for the efficient provision of public goods: experimental evidence. Am Econ Rev 90(1):247–264CrossRefGoogle Scholar
  16. García-Quijano C (2009) Managing complexity: ecological knowledge and success in Puerto Rican small-scale fisheries. Hum Organ 68(1):1–17CrossRefGoogle Scholar
  17. Hannesson R (1997) Fishing as a supergame. J Environ Econ Manag 32(3):309–322CrossRefGoogle Scholar
  18. Hastings A, Botsford LW (1999) Equivalence in yield from marine reserves and traditional fisheries management. Science 284(5419):1537–1538CrossRefGoogle Scholar
  19. Hayek FA (1945) The use of knowledge in society. Am Econ Rev 35(4):519–530Google Scholar
  20. Hilborn R, Walters C (1999) Quantitative fisheries stock assessment: choice, dynamics, and uncertainty. Chapman & Hall, LondonGoogle Scholar
  21. Janmaat J (2005) Sharing clams: tragedy of an incomplete commons. J Environ Econ Manag 49(1):26–51CrossRefGoogle Scholar
  22. Kaffine DT, Costello C (2011) Unitization of spatially connected renewable resources. BE J Econ Anal Policy 11(1):1–11Google Scholar
  23. Kapaun U, Quaas MF (2013) Does the optimal size of a fish stock increase with environmental uncertainties? Environ Resour Econ 54(2):293–310CrossRefGoogle Scholar
  24. Levhari D, Mirman LJ (1980) The great fish war: an example using a dynamic Cournot-Nash solution. Bell J Econ 11(1):322–334CrossRefGoogle Scholar
  25. Libecap GD, Wiggins SN (1985) The influence of private contractual failure on regulation: the case of oil field unitization. J Polit Econ 93(4):690–714CrossRefGoogle Scholar
  26. List JA, Mason CF (2001) Optimal institutional arrangements for transboundary pollutants in a second-best world: evidence from a differential game with asymmetric players. J Environ Econ Manag 42(3):277–296CrossRefGoogle Scholar
  27. Oates WE (1999) An essay on fiscal federalism. J Econ Lit 37:1120–1149CrossRefGoogle Scholar
  28. Ostrom E (1990) Governing the commons. Cambirdge Universtiy Press, CambridgeCrossRefGoogle Scholar
  29. Reed WJ (1979) Optimal escapement levels in stochastic and deterministic harvesting models. J Environ Econ Manag 6(4):350–363CrossRefGoogle Scholar
  30. Sanchirico JN, Malvadkar U, Hastings A, Wilen JE (2006) When are no-take zones an economically optimal fishery management strategy? Ecol Appl 16(5):1643–1659CrossRefGoogle Scholar
  31. Sanchirico JN, Wilen JE (2005) Optimal spatial management of renewable resources: matching policy scope to ecosystem scale. J Environ Econ Manag 50(1):23–46CrossRefGoogle Scholar
  32. Schlager E, Ostrom E (1992) Property-rights regimes and natural resources: a conceptual analysis. Land Econ 68(3):249–262CrossRefGoogle Scholar
  33. Wiggins S, Libecap G (1985) Oil field unitization: contractural failure in the presence of imperfect information. Am Econ Rev 75:368–385Google Scholar
  34. Wilen JE, Cancino J, Uchida H (2012) The economics of territorial use rights fisheries, or TURFs. Rev Environ Econ Policy 6(2):237–257CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Bren SchoolUniversity of California, Santa BarbaraSanta BarbaraUSA
  2. 2.National Bureau of Economic ResearchCambridgeUSA
  3. 3.Department of EconomicsUniversity of Colorado BoulderBoulderUSA

Personalised recommendations