INCOMPLETE OWNERSHIP, RENT DISSIPATION, AND THE RETURN TO RELATED INVESTMENTS

The welfare loss from free access resource use is examined in a general equilibrium model. Actions that intensify competition for the resource, either by lowering the private cost or raising the private benefit of using it, can raise this loss above the rent the resource would earn if owned. Such ‘excess dissipation’is illustrated with examples applicable to unowned groundwater. Regulatory policies that fix inputs needed to acquire the resource work by transferring part of the resource's rent to controlled inputs. The resulting welfare effect depends on the elasticity of substitution between, and relative prices of, controlled and uncontrolled inputs.