Unitization of spatially connected renewable resources

Abstract

Spatial connectivity of renewable resources induces a spatial externality in extraction.We explore the consequences of decentralized spatial property rights in the presence of spatial externalities.We generalize the notion of unitization -developed to enhance cooperative extraction of oil and gas fields -and apply it to renewable resources which face a similar spatial commons problem.We find that unitizing a common pool renewable resource can yield first-best outcomes even when participation is voluntary, provided profit sharing rules can vary by participant.

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