Kelvin Mulungu Summary of Managing partially protected resources under uncertainty

The paper addresses the problem of congestion in common pool resources when part of the
pool has been put under private ownership and hence efficiently manageda problem they
call cross-resource spillover problem. The remaining pool of resources suffers from over-
congestion. A clear example is when a toll-gate is installed on a highway. This would push
motorists to other side roads without toll-gates, thereby inefficiently congesting them to the
extent that the time take to drive has a whole goes up, making initiative not socially optimal.
This close to what we have covered in class on common pool resources. For example, the
fishery scenario where there is a specified time for fishing suffers from over-congestion when
it is that time. To counter this, the authors suggest using one of the instruments we have
covered under regulating externalities like pollution: price based (e.g. taxes) or quantity based
(e.g. quotas). In a similar fashion to considering the optimality of each instrument under
uncertain marginal damage or abatement costs, the authors also consider this scenario under
uncertain congestion costs. On this premise, the arguments from the paper are;

1. Because the marginal cost curve is not independent of use, the authors identify a
superiority of taxes regardless of the relative slopes (and expected positions) of the
marginal cost (MC) curves when demand is not perfectly elastic. This is because the
enclosed (privatised) market is can flexibly respond a cost shock in form of a tax
while the quota does not allow this. This different from fully open access resource the
2. Perfectly elastic demand represents a special case without enclosure spillovers, In this
case, both policies have the same expected costs.
3. When a monopolist is in control of the enclosure, the same problems as we discussed
in chapter 17 arise: underuse or below optimal supply of the extraction. But in the
case of a partially protected, this also results in overuse of the open access pool.
When the enclosed rm is a monopolist, two problems emerge: underuse of the
privatized resource and overuse of the open-access resource. This skewness towards
overexploitation of the open access resource and underutilization of the enclosure is
greater when the enclosure is owned by a monopolist compared to a competitive firm.
Thus, partial enclosure is even more likely to raise total costs relative to open-access
when the manager behaves as a monopolist.
4. For a linear demand function, a tax option is weakly preferred to a quota. With market
failure in both pools, more than one instrument is needed if demand is responsive. If
the monopoly is in charge of the enclosure, then tax on extraction of the open access
is not enough, but also a subsidy on monopoly production to allow him to produce
Kelvin Mulungu Summary of Managing partially protected resources under uncertainty

more. As demand gets flatter and less responsive, taxing open access becomes less
important compared to subsidizing the monopoly.

In a nutshell;

Question? how can policies take into account congestion of open-access resource pools
caused by efficient management of other resource pools?

Finding is; in situations of uncertainty about congestion costs, price instruments, rather
than quotas, are preferable in regulating resource use.

Why does this matter? A better understanding of the potential negative effects of private
ownership on publicly managed resource pools can contribute to more efficient resource
management policies.