Managing partially protected resources under uncertainty

It is common wisdom that open-access leads to the inefficient use of resources and private ownership of resources improves efficiency. However, the impact of enclosure and efficient management of some resource pools on other open-access resource pools is poorly recognized. The problem is common to many congestion-prone facilities including roads, parks, fisheries, antibiotics, grazing lands and wilderness areas. In this paper, we analyze the optimality of price and quantity instruments in regulating resource use when there is uncertainty about congestion costs. Price instruments are found to be preferable to quantity instruments, and strictly so when demand is less than perfectly elastic. We also explore the effect of market power by resource owners on the relative efficiency of the two instruments.