Environmental Economics Seminar
Credit Market Development, Property Rights and Resource Extraction: Evidence from Global Fisheries
Assistant professor at Faculty of Land and Food Systems
While the rapid expansion of credit markets around the world has fueled significant economic development, it may also have accelerated the depletion of common pool resources. We examine the impact of credit market development on resource extraction by composing a dynamic model of resource extraction under property right insecurity and testing the model’s predictions with new data on catches, stock sizes and property rights security of the world’s commercial fisheries.
As credit markets improve, our model predicts two main effects. First, the cost of capital diminishes – this tends to favor excessive resource extraction as harvesting capital is accumulated. But second, discount rates are lowered – this favors resource preservation because future harvests weigh more heavily in extractors’ welfare. We find that which effect dominates depends crucially on the strength of property rights; insecure rights weaken the long-term incentives arising from a low discount rate. We thus show that when property rights are weak, credit market development is likely to lead to excessive harvest; but when property rights are strong, improved credit markets could actually lead to resource preservation. In our empirical application to the world’s fisheries, we find that credit market development increases resource harvesting under insecure property rights but reduces resource harvesting under secure property rights. These result suggest a pivotal role played by property right institutions in determining whether credit market improvements will hasten, or reverse, the decline of common pool natural resource stocks.
CO author : Christopher Costello
Montpellier SupAgro / INRA - Bat. 26 - Centre de documentation Pierre Bartoli
2 Place Viala 34000 Montpellier
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