Alternative Regimes of Common Property Exploitation for Manganese Nodules and Their Market Structure Impact.

Abstract

As a result of the technological and financial changes in the extraction of manganese nodules from the deep-seabed, the nodules have been recognized as an alternative source of minerals to land-based sources. The commercial interest in the extraction of the nodules is primarily for their nickel, cobalt, copper, and manganese. Three sources of uncertainty, however, have prevented involved consortia from entry into the actual production stage. These uncertainties are of a technological, economic, and legal nature. In spite of these difficulties, most experts maintain that the nodules are likely to be mined before the end of the century. The choice of the regime to govern the use of a resource, i.e., the property right system, determines the efficiency in the use of resource, the rate of extraction, and the distribution of economic rent. Both developing and developed countries agree with the notion that manganese nodules are a part of the "common heritage of mankind," but the regime advocated by each group is different. The efficiency oriented free-access regime of the developed countries attempts to maximize the economic rent before dealing with the distributional problems through fiscal policies. On the other hand, the regime supported by the U.N., the Law of the Sea Treaty (LOST), reflects the emerging New International Economic Order and seeks more than a fair distribution of the economic rent. Extraction of manganese nodules from the deep-sea is perceived by most observers as an opportunity to increase the degree of competitiveness in the metal markets. However the existing knowledge of the technology and the costs of deep-seabed mining and the historical trend in other industries which have gone through similar changes indicate that the utilization of the new source of supply may not improve the concentration significantly. Several factors are introduced as barriers to entry such as economies of scale in production and in financing. In the evaluation of the two alternative regimes, most of the entry barriers are shared by both. However, since the consortia views the LOST as a legal barrier, the future of the sea-bed mining under this regime does not look promising.