The Anticommons and the Environment

Abstract

In 1838 Augustin Cournot defined the concept of a “complementary oligopoly,” where two (or more) independently held inputs are required in order to produce a single output. He also showed that efficiency was achieved when the complementary inputs were supplied by a single firm, rather than competing firms, as any hold-up incentive would be internalized by a single firm. It was the first instance in the literature where consolidation of market power was actually a welfare improving outcome. Recently, the complementary oligopoly paradigm has been adopted in the legal literature and rebranded the “anticommons” (Heller, 1998). In this paper, the paradigm is extended still further by applying it to the regulatory sphere. The contextual example is river-basin water regulation in the U.S., where a vast array of regulatory agencies all exist as independent rights holders into river-related regulatory procedures. As each agency monopolistically controls a particular aspect of river-basin water management, it has the incentive to hold out and require individual demands that, altogether result in high costs and inefficient outcomes. Reform of the regulatory system, towards greater consolidation as Cournot first suggested, would lead to welfare-improving outcomes.