Environmental Engineering Reference
In-Depth Information
well dei ned, (2) transactions are costless and (3) there is no income ef ect
(Baland and Platteau, 1996). The Coase theorem was later criticized for
the following reasons. First, in a game involving more than two individu-
als (parties), the solution that leads to an ei cient outcome through decen-
tralized bargaining depends on the initial assignment of rights. Second, the
negative ef ects of many resource and environmental problems occur in
the distant future. The Coase theorem is not clear about how the concern
of future generations is taken into account in the bargaining process.
Despite some crucial dii culties, there is no doubt that the Coase theorem
demonstrates the importance of property rights and transaction costs in
order to internalize the externality associated with public good manage-
ment. The basic motivations for contracting property rights are as follows.
First, individuals do not have to consider the full social costs of their
activities with respect to resource use in the absence of well-dei ned prop-
erty rights. Second, resources will be undervalued because reallocation of
the resources to higher-value uses becomes more costly and not feasible if
property rights are absent. I shall clarify this argument in the subsequent
discussion.
This chapter proceeds as follows. The second section focuses on the
current debate concerning property rights transformation, placing the
problem in a broader theoretical context. I then analyse the notion of
common property resources and show how open access resources dif er
fundamentally from resources held under community ownership. The role
of transaction costs is then examined before considering the impact of
group heterogeneity.
Property rights transformation and resource management
Property rights are social institutions, including formal legal codes and
informal social norms, which dei ne and enforce the range of privileges
granted to an individual or group of individuals with respect to specii c
economic resources (see Barzel, 1997). The assignment and enforcement of
property rights is thus a legal mechanism that institutionalizes ownership
of resources to a particular agent (however, property rights may also be
informal institutions). According to the property rights school of think-
ing, the problem of over-exploitation and degradation of CPRs can be
resolved only by creating and enforcing private property rights (Demsetz,
1967; Cheung, 1970; Johnson, 1972; Smith, 1981). Private property is
considered to be the most ei cient way to internalize the externalities gen-
erated from the over-exploitation of the commons. On this basis, restruc-
turing property rights remains one of the top priorities in land reform and
natural resource policy in many developing countries. A common practice
is to clarify poorly dei ned property rights over these resources, especially
