mon-pool resources with limited negative externalities, a finding echoed by Rose in Chapter 7.
Chapter 7 examines hypotheses regarding the relative performance of common property regimes and tradable environmental allowances, operationalized in terms of their adaptability to (1) changes in resource demand and (2) variability of the resource. The institutional performance is hypothesized to depend on the following factors: (1) size and complexity of the common-pool resource (2) its use (extractive versus additive); and (3) characteristics of resource users and their interactions.
If the problem of common-pool resource overuse lies in ill-defined property rights, then defining property rights would solve the problem. Questions then arise as to what bundle of rights (specifically the right to manage and alienate the common-pool resource) provides the necessary incentives for owners to invest resources to prevent common-pool resource overuse, and who can define property rights and allocate them among individuals. Tradable permits and common property regimes differ across these dimensions.
The level of detail of the right definition and the ability of the regime to vary rates of resource use over time differ significantly between these regimes. Rights can be more detailed and flexible in common property regimes than in tradable permit regimes because they are not traded in the market. In fact, in resources that are complex (exhibit important interactions among various aspects of resource use) and vary over time, Rose points out that common property regimes outperform tradable permits, especially when the users belong to a close-knit, high-trust community.
Tradable permit regimes, on the other hand, develop uniform rules that offer security in market exchange, even allowing for trades among strangers. Therefore, they perform better for large-scale, but noncomplex common-pool resources. However, for complex common-pool resources, Tietenberg points out how rules can be designed to ensure effective working of tradable permits and prevention of resource overuse. He also deals with another criticism of tradable permit regimes: that they sacrifice equity and environmental effectiveness. He suggests that if a society wishes to prevent a concentration of permits in the hands of some resource users, it may limit transferability of the quotas, of course at the cost of lowering economic effectiveness.
Tietenberg examines cases in which a local, state, or national government assigns property rights and allocates them among common-pool resource users. The users are not allocated the complete bundle of rights, but usually only the right to withdraw from the resource (or deposit pollutants into the resource) and the right to sell their allocations to others. Because users do not influence total allocations, the total level of common-pool resource use—and therefore deterioration—depends on governmental decisions. In the case of common property regimes, users usually do not have the right to sell their individual allocations. They can, however, jointly decide the aggregate level of common-pool resource use.