Endogenous property rights regimes, common-pool resources and trade

A model is developed where opening to trade affects a dynamic common-pool resource stock and welfare through a community's voting decision to institute a property rights regime regulating the stock. The model finds that resource stock levels can decline even when a Markov perfect equilibrium path for labor and property rights regimes are chosen to maximize welfare. Thus, opening to trade can be welfare maximizing even when resource stock declines. Experimental results show that under certain conditions, subjects briefly follow a Markov perfect equilibrium path for property rights regime choice but labor allocations are myopically chosen indicating that some resource dynamics may be considered by subjects.

Research Highlights► Resource stocks may decline even if a Markov perfect equilibrium path is chosen. ► Opening to trade can be welfare maximizing even when resource stock declines. ► Experimental results show that labor allocations are chosen myopically. ► Property rights regimes choices follow a Markov perfect equilibrium path briefly.