Spatial concessions with limited tenure

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4 April 2016

We examine theoretically a system of spatially-connected natural resource concessions with limited tenure. The resource migrates around the system and thus induces a spatial externality, so complete decentralization will not solve the tragedy of the commons. We analyze a system in which conces-sions can be renewed, but only if their owners maintain resource stocks above a pre-defined target. We show that this instrument improves upon the decentralized property right solution and can replicate (under general conditions) the socially optimal extraction path in every patch, in perpetuity. The duration of tenure and the dispersal of the resource play pivotal roles in whether this instrument achieves the socially optimal outcome, and sustains cooperation of all concessionaires.