Impact of low, high and super congestion of an open-access resource under autarky and trade

Abstract

Many developing countries obtain a large share of their income from the exploitation of open-access common-property renewable natural resources. Imperfect or lack of property rights for these resources results in the partial or non-internalization of negative externalities. Analysis of this problem has focused on “low” congestion situations and has neglected the more important congestion categories where average and marginal cost schedules are backward-bending and welfare losses are significantly greater. This paper analyses two such categories, “high” and “super” congestion, and examines the impact of open access on steady-state welfare, natural resources, employment, output and prices in a general equilibrium model. It finds that greater congestion increases welfare costs, with trade further – and always – reducing an open-access exporter’s resources and welfare. An optimal tax raises price and reduces output under autarky in the case of low or high congestion but reduces price and raises output under super congestion, with significantly larger gains. The effects of trade between an open-access developing country and a regulated but otherwise identical partner country is very dependent on the degree of congestion. Trade between two open-access countries with different externality (population) levels raises global output and welfare, improves global efficiency of resource use and reduces international inequality. Welfare gains from emigration is much larger in super congestion situations, especially if migration results in low congestion.