The Allocation and Dissipation of Resource Rents: Implications for Fishery Reform

Abstract

In the move to adopt rights based arrangements for renewable resources to avoid the losses of open access and the inefficiencies of prescriptive regulation, we argue that grandfathering the allotments of local users can be the most efficient distribution mechanism. We differ from the standard support among economists for auctions which contends that auctions allocate rights to the highest valued users and thereby maximize rents. Our contention is that rents are not a fixed stock as is commonly assumed, but rather depend upon the actions of those who use the natural resource and convert it into valuable goods and services. First-possession allocation assigns ownership and rents to existing users, reinforcing their incentives for stewardship and rent maximization. Resource rents are an important source of wealth and well being, especially in developing countries. By contrast the alternative, auction allocation, assigns ownership to winning bidders, but the rents are captured by the auctioneer, often the state, not local agents. We argue that there can be important efficiency effects. Our empirical focus is on fisheries, but the implications extend to other settings.