Leaving the Commons: Market Integration and Natural Resource Use in Developing Countries

• Environmental and Resource Economics Workshop

Date and Location

Friday, November 9, 2012, 12:10 PM - 1:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Most resource management studies model the resource sector in isolation of the rest of the economy of which it is part. We develop a theoretical model that demonstrates the importance of market structure and economic linkages in understanding the impact of economic changes on natural resource extraction in an open access resource setting. Economic change in other sectors has an ambiguous effect on the amount of labor in a resource sector. Higher returns in other sectors can draw labor out of a resource commons, while increases in demand for the resource output can attract more labor. This can result in unexpected supply responses in poorly-integrated markets. Under certain conditions other-sector price increases can decrease pressure on resource systems. In order to test which response dominates in practice, we calibrate a localized general equilibrium model with micro-data from a Northern Honduran artisanal fishery. We find that price changes in non-fishery sectors can have qualitatively different impacts in the fishery, and impacts depend on market structure. The findings point to a need to account for economic linkages and market structure when designing policies to reduce pressure on a natural resource.