Wednesday, September 26, 2012

Group Size, Transaction Costs, and the Robustness of Common Property Regimes

It is commonly understood that transaction costs rise with the number of participants, and that this principle might limit the viability of common property regimes to successfully manage common pool resources over long time periods, especially under social-ecological conditions of growth in aggregate demand relative to supply.

Today, I attended a presentation which compared two common property agricultural regimes in the Swiss Alps, where it seems one system had too few members to make it viable, especially given the relative heterogeneity of economic production in their region, where tourism was at least as important to the local economy as agriculture. 

A typical common property regime will give participants equal rights to access and use common pool resources, but also impose on those users various duties to maintain the resource, etc. In the case where a CPR has very few members, however, the costs of bearing maintenance obligations may exceed the benefits of cooperative resource management, especially when demand for the resource, e.g., the  pasture, does not create a high risk of over-exploitation.

I find very interesting the implication that common property regimes may lack robustness as a result of either too large a group or two small a group of participants. (Of course, other ecological, geographical, and institutional circumstances matter as well.)

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