Dynamic Resource Management under Weak Property Rights: A Tale of Thieves and Trespassers

Using a dynamic framework with strategic interactions, we study the management of a non-renewable natural resource when property rights are generally weak. Under generally weak property rights both the resource stock and the revenues from exploiting it are imperfectly protected, due to trespassing and theft respectively. Trespassing and theft affect the legitimate owner’s extraction decision: extracting the resource today protects the stock against trespassing but exposes the revenues to theft. Moreover, in an evolving institutional setting, the anticipation of a change in the strength of property rights further distorts the extraction decision: e.g., if the owner anticipates stronger property rights in the future, extraction is delayed. Our results indicate that the depletion of the resource is decreasing in the intensity of theft. In addition, when the owner and the trespassers are affected by theft, the depletion of the resource is below (above) the social optimal level if the intensity of theft is high (low).