Working Paper: NBER ID: w23382
Authors: Andrew B. Ayres; Eric C. Edwards; Gary D. Libecap
Abstract: Collective action to remedy the losses of open access to common-pool resources often is late and incomplete, extending rent dissipation. Examples include persistent over-exploitation of oil fields and ocean fisheries, despite general agreement that production constraints are needed. Transaction costs encountered in assigning property rights are an explanation, but analysis of their role is limited by a lack of systematic data. We examine governance institutions in California’s 445 groundwater basins using a new dataset to identify factors that influence the adoption of extraction controls. In 309 basins, institutions allow unconstrained pumping, while an additional 105 basins have weak management plans. Twenty of these basins are severely overdrafted. Meanwhile, users in 31 basins have defined groundwater property rights, the most complete solution. We document the critical role of transaction costs in explaining this variation in responses. This research adds to the literatures on open access, transaction costs, bargaining, and property rights
Keywords: transaction costs; collective action; groundwater management; California; common-pool resources
JEL Codes: K11; N52; P48; Q15; Q25; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transaction costs (D23) | variation in management responses across different basins (Q25) |
| higher transaction costs in critically overdrafted basins (Q31) | lack of agreement on management plans (D74) |
| higher transaction costs (D23) | longer adjudication durations (K41) |
| transaction costs (D23) | effectiveness of collective action (D70) |
| higher transaction costs (D23) | delayed or incomplete implementation of extraction controls (L72) |
| aggregate benefits from management exceed transaction costs (D23) | users likely to agree on pumping limits (L95) |