On the Distributive Impact of Privatizing the Commons: The Case of Renewable Resources

The privatization of a natural resource is often proposed as a solution to the degradation of natural resources under open access, known as the Tragedy of the Commons. However, this efficiency improvement may come at a distributional cost (Weitzman, 1974) as traditional users of the resource lose income and employment unless they are given a large enough share of the property rights. The present paper demonstrates that, in the case of renewable resources, traditional users may gain from privatization even if they are denied ownership of the resource. Indeed, a private owner maximizes profits by preserving the resource, which results in long-term increases in employment. Hence, the short term losses to traditional users from lower labor demand and loss of rent, must be weighted against the long term gains from employment creation. We also derive the conditions under which privatization is Pareto-improving, benefiting both the new and traditional owners of the natural resource.