Theoretically efficient pricing for commercial uses of public land resources

Abstract

Assuming free entry of firms to public lands and the consequent diminishment of their value as pure wilderness, there is an administered price per acre that fosters the theoretically efficient level of commercial use, such as mining, grazing or logging. That price equals households' marginal willingness to pay to preserve the public land as wilderness. It also equals the efficient price of private land times the ratio of the marginal commercial productivities of public to private land. The exceptions are the corner solutions in which the administered price either equals the marginal willingness to pay for wilderness, but exceeds the marginal revenue product of the land, in which case none of the land is used commercially, or else equals the marginal revenue product, but exceeds the marginal willingness to pay, in which case all of the land is used commercially.