Community Level Natural Resource Management Institutions Work in (Game) Theory as Well as in Practice: Lottery Allocation of Fishing Sites Implements Correlated Equilibrium

Abstract

The Institutional Analysis and Development (IAD) literature led by Elinor Ostrom concludes that Nash equilibrium predictions are empirically falsified in the social dilemmas found in community-level natural resource management problems. However, Nash equilibrium is not the only solution concept within noncooperative game theory. Here we demonstrate the power of Correlated Equilibrium (CE) to explain lotteries for the allocation of fishing sites as enduring community-level natural resource management institutions. Such CE-implementing lotteries are procedurally fair, equitable, and increase total expected fishery value. This modeling approach also reveals the nature of the interdependence between the size and spacing of fishing sites and the in-use characteristics of fishing gear on the one hand, and the degree of formalization of property rights and the structural features of the natural resource management institution on the other hand. When appropriately applied, noncooperative game theory offers a powerful explanatory complement to the IAD literature on community-level natural resource management.