UC Santa Barbara

In this dissertation I study how the structure of property rights is shaped by the benefits and costs of defining and enforcing rights along various dimensions to inform current policy debates by better understanding the economic structure of the resource problems we face and saying something about the opportunity costs of policy proposals to alter resource use. I do this by combining formal models of natural resource use with detailed econometric analysis of novel historic and modern data sets which I build using GIS.

In Chapter 1, Gary Libecap and I analyze the economic determinants and effects of prior appropriation water rights that were voluntarily implemented across a vast area of the US West, replacing common-law riparian water rights. We model potential benefits and test hypotheses regarding search, coordination, and investment. Our novel dataset of 7,800 rights in Colorado, established between 1852 and 2013 includes location, date, size, infrastructure investment, irrigated acreage, crops, topography, stream flow, soil quality, and precipitation. Prior appropriation doubled infrastructure investment and raised the value of agricultural output beyond baseline riparian rights. The analysis reveals institutional innovation that informs contemporary water policy.

In Chapter 2, Dominic Parker and I study how subdivision of land rights can affect natural resource use. Land contains multiple natural resources that are efficiently managed at different spatial scales, either concurrently or over time. We explain how subdividing the commons to promote one resource (agricultural land) inadvertently creates anticommons problems for another (shale oil). We provide empirical tests from a natural experiment on the Bakken, one of the world's largest booming oil fields. Before oil was discovered, U.S. land allotment policies created a mosaic of private, tribal, and fragmented ownership to shale on and around the Fort Berthold Indian Reservation. We compare horizontal drilling patterns across over 40,000 parcels on and off the reservation. We find that subdivision has caused economically significant delays in compensation to shale owners, as parcels surrounded by tribal lands are more quickly and fully exploited. The evidence demonstrates how subdivision can inadvertently delay spatially coordinated resource use and reduce resource rents.

In Chapter 3, Gary Libecap and I examine the emergence of spontaneous claims to inframarginal rents in open-access resources. Although early models of open-access in economics predicted full rent dissipation as homogeneous agents exploited the resource, later theory and empirical observations indicated persistence of inframarginal rents. The existence of inframarginal rents under open-access has been recognized in the literature, but agents’ incentives to invest in de facto institutions to protect rental streams from competitors has not been explored. These institutions include local property rights, specialized production, and restricted information sharing. Moreover, there has been no recognition of how these informal arrangements might contribute to observed resistance by inframarginal-rent earners to externally imposed schemes in order to reduce aggregate rent dissipation. Proponents are high-cost agents, who earn low or zero rents. High-cost agents ought to be able to compensate low-cost agents for a shift to a new property regime if the shift makes them better off than they were under open-access. Empirically, however, this appears not to happen and formal open-access persists. We develop a simple framework to show why ``willingness to pay'' and ``willingness to accept'' do not overlap and that institutional change is not Pareto-improving for those who have adjusted well to open-access. If agents are heterogeneous in search and production costs, and the resource is large and heterogeneous in quality, then low-cost parties search for the most productive locations and apply their superior skills and develop human and physical capital to earn inframarginal rents. We then apply this framework to historical experiences in oil and gas and fisheries.