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Spontaneous Property Rights in Open Access Resources

This paper examines the emergence of spontaneous, informal first-possession property rights under open-access settings for five resources in U.S economic history. Although early models of open-access predicted full rent dissipation as infinite numbers of homogeneous agents entered to exploit the resource, later theory and empirical observations indicated persistence of inframarginal rents. If agents are heterogeneous in search and production cost and the resource is large and heterogeneous in quality, then not all rents are dissipated. Low-cost parties search for the most productive regions and apply their superior skills and develop human and physical capital to earn inframarginal rents. The existence of inframarginal rents under open access has been recognized in the literature. The incentive of agents to invest in de facto informal property rights to protect rental streams from competitors has not been explored. Moreover, there has been no recognition of how these informal arrangements might contribute to observed resistance by inframarginal-rent earners to external rationalization schemes designed to reduce the aggregate rent dissipation from open access. Proponents are high-cost agents, who earn low or zero rents. Under open access there may be aggregate net benefits from the more formal assignment of property rights, referred to as rationalization. To gain consensus on rationalization in the presence of aggregate net benefits, high-cost agents ought to be able to compensate low-cost agents for a shift to a new property rights regime. But empirically, this appears not to happen. We develop a simple framework to show differential rents and informal claiming by heterogeneous parties and to outline why willingness-to-pay and willingness-to-accept may not overlap in the presence of asymmetric information. When these values do not converge, rationalization is not Pareto improving and agreement to formally end open access does not occur, even with general agreement on the overall problem of rent dissipation. We apply the framework to historical experiences in gold, oil and gas, rangeland, and western U.S. water to show the development of informal property rights and why gaining a consensus on valuing these is difficult.