The rule of capture and the economic dynamics of natural resource use and survival under open access management regimes.

• Author: Johnston, Jason Scott
• Position: The Rule of Capture and Its Consequences

1. INTRODUCTION II. THE RULE OF CAPTURE AND NATURAL RESOURCE HARVEST A. Rule of Capture for Natural Resources (Asset Stocks) B. Rule of Capture for Asset Flows C. Open Access and Extinction 1. The Dynamics of Open Access Harvest 2. Selected Implications of Harvest Dynamics for the Diagnosis and Cure of Problems of Overharvest and Extinction a. Market Incentives are Not to Blame: Overharvesting by Native Peoples, and Long Term Market Cycles b. A voiding Human-Induced Extinctions: Patterns and Lessons of Institutional Adaptation and Change i. What Does the Theory Recommend? ii. The Simple Political Economy of Perverse Open Access "Regulation": The Coastal Fisheries Example iii. Some Realism About the Role of Science iv. The Limited Possibilities of Privatization III. The RULE OF CAPTURE AND THE POLLUTION PROBLEM A. Dynamic Harvest Model of the Pollution Problem B. Policy implications of the Dynamic Harvest Model of Pollution IV. THE RULE OF CAPTURE, AND LAND USE A. Unregulated Development and Open Space Harvest: The Dynamics of Overdevelopment. B. Why Overdevelopment Does Not Mean the "Extinction "of Open Space: The Self-Correcting Properties of Land Equilibria C. The Regulatory Paradox Redux. V. CONCLUSION: THE NOT SO PUZZLING PERSISTENCE OF THE RULE OF CAPTURE I. INTRODUCTION

   The "Rule of Capture" may mean many different things. It might be thought of narrowly, as a common law doctrine that determines when and if a person acquires fights to a previously unowned, wild animal by capturing or killing it. Or the rule of capture may be understood a bit more broadly, as stating that a person has a right to however much of a commonly owned, public natural resource she has been able to take and reduce to her exclusive possession. Still more broadly, the rule of capture may be understood as setting up a right to unlimited use of publicly owned natural resources--whether the use is harvesting part of a resource stock, as with fish, or polluting it, as with rivers and airsheds. Finally, and most broadly, the rule of capture may be taken to be equivalent to a general rule of possession for publicly owned natural resources--the first user is the owner, either of what she has used or taken, or of the entire resource stock.

   In this article, I explore the economic incentives for resource use created by the rule of capture understood as a general, unregulated right to use publicly owned natural resources to whatever level one pleases, and to keep the flow value of that use. I state the rule of capture in this broad sense because this is the way it has traditionally been understood for natural resource harvest activities ranging from fisheries to oil and groundwater pumping. While it is costly to harvest such publicly owned natural resources--by sinking a well, or buying and operating a fishing vessel--the basic management regime in these core cases is open access. Hence in my terms, the rule of capture is a general management regime under which publicly owned natural resources are free and open for public use, with users not required to pay anything for such use.

   My first objective in this paper is to review some of the basic economics of rule of capture management regimes. I do this by comparing what has been called the rule of first possession essentially the rule of capture as applied to asset stocks (1)--to the rule of capture where, to repeat, the first possessor gets whatever she has possessed. In both situations, the rule of capture has certain static inefficiencies: by encouraging too rapid resource use and costly racing in the case of first possession, and by allowing people to neglect the effect of their own use in lowering the value of use by others in the case of the rule of capture.

   While I review these basic static inefficiencies, my main concern here is with the kind of dynamic incentives created by the rule of capture. I am interested in particular in what I take to be a widely held folk belief, which is that it is the open access, rule of capture management regime that is responsible for natural resource collapse--the loss of entire species, populations, or ecosystems. By reviewing some of the basic bioeconomics of the fishery, I explain why this belief is generally false. While it is possible for open access harvest to lead to extinction and resource collapse--as populations are hunted down to such low levels that they are no longer viable, and actually continue to crash to zero rather than growing back--the more likely bioeconomic dynamic is one of cycles in the populations of human harvesters and their natural prey. In such cycles, high harvest levels attract more harvesters, but more harvesters eventually lower the stock, meaning reduced profits, which cause harvesters to exit from a particular harvest industry, reducing harvest pressure and allowing the stock to recover, and so on indefinitely.

   This analysis has concrete implications for natural resource harvest policies. But the recommended policies--such as those that encourage harvesters to avoid sunk costs in harvesting particular species and systems, and that develop economic alternatives to harvest--have been almost the opposite of those that governments have actually adopted. Indeed, I argue that the major reason for the collapse and imperilment of species and ecosystems is not the bioeconomic dynamic set up by the open access rule of capture, but rather government policies that have systematically subsidized natural resource use and thereby discouraged exit from extractive (harvesting) industries.

   The bioeconomics of open access harvest axe conventionally linked to, and indeed arose from, the study of resources such as fisheries and forests. Upon closer analysis, however, one can see that the open access, rule of capture management regime sets up a very similar economic dynamic both for natural resource pollution and land development. I present such an analysis here. In the case of pollution, just as the profitability of natural resource harvesters depends upon the size and health of the stock they are harvesting, so too is the productivity of most industries that pollute watersheds and airsheds decreased by high levels of ambient pollution. Moreover, just as resource stocks have natural growth rates, so too do local environments have natural rates at which they both produce and consume most common pollutants. Thus a parallel to the model of resource harvest exists for resource pollution. I develop this model, and then explain its most important policy implication, which is that just as economically motivated human decisions regarding entry to and exit from harvest industries are key, so too is the regulation of polluters' decisions about when to leave a polluted local environment a central concern of modern environmental laws.

   I conclude by stretching the open access model to land development. Land is generally privately owned, and one might think that an open access model therefore cannot shed light on the land development process. While land is privately owned, however, the location of a parcel of land strongly affects its value. In particular, land values in the rapidly developing, allegedly sprawling American urban-rural fringe are strongly affected by the amount of nearby undeveloped, open space land. In a very real sense, land development in such places is an attempt to capture the value of open space. It is thus subject to very similar economic dynamics as are natural resource harvest and pollution. I explain these dynamics and argue that they have the important but generally unrecognized implication that policies which attempt to restrict or cap land development when open space becomes scarce may actually cause a more rapid loss of open space.

2. THE RULE OF CAPTURE AND NATURAL RESOURCE HARVEST

   1. Rule of Capture for Natural Resources (Asset Stocks)

      As applied to determine ownership of an entire asset stock--such as a mineral deposit--the rule of capture amounts to a system in which the first person to find and develop the natural resource acquires ownership of it. Although it has some efficient properties, such a race to develop is on balance likely to be inefficient.

      From an efficiency point of view, the advantage of awarding property rights to the first person to develop a natural resource is it incentivizes development effort, and--at least on average--awards the property right in the resource to the person with the lowest cost or highest productivity in searching for and developing natural resources. Development races also, however, generate clear inefficiencies.

      The first is that there is an externality when many persons are competing for a single prize. In competing for a prize, each player's probability of winning--by being the first to develop--depends upon the intensity of effort chosen by the other contestants. The externality arises because no individual takes account of the negative effect of her own effort on the probability that other contestants will be first. Because of this failure to individually internalize the collective cost of capture effort, from a social point of view, too much effort is expended and development occurs too quickly. (2) Indeed, with free entry into the race to develop, people enter the race provided that they expect a positive return from entry, ignoring the effect of their entry on the chances of others.

      This phenomenon--of rent dissipation and excessive entry--is true in a wide variety of contexts in which individuals race for property rights. (3) In the natural resource area, whether this problem arises depends very much upon how abundant resources are relative to the number of people racing to acquire rights. With a large number of resources, relative to contestants for property rights, externalities and rent dissipation are unlikely to be a severe problem. When the number of contestants becomes large, relative to resource abundance, however, the rule of capture raises not only...