Are Two Rents Better than None? When Monopolies Correct Ill-Defined Property Rights

Abstract

We theoretically demonstrate the net change in welfare when moving from an open-access institution to a monopoly resource manager. A monopoly renewable resource manager, such as a harvester cooperative, may create a gain relative to a rent-dissipating sector because of its internalization of the impact of harvesting on the resource stock. As the monopolist reduces harvest, resource stocks recover and resource rent is generated through reduced harvesting costs. Thus, it is possible that the monopoly harvest exceeds the rent-dissipated harvest over time, leaving both producers and consumers better off. We argue that local resource management institutions that exert market power should not be considered violations of antitrust laws without first considering the costs and benefits of monopoly management. In cases where outside management has not had success, local management with monopoly power could represent a second-best solution.