Property rights, regulatory capture, and exploitation of natural resources∗

We study how the strength of property rights to individual extractive firms affects a regulator’s choice over exploitation rates for a natural resource. The regulator is mod-eled as an intermediary between current and future resource harvesters, rather than between producers and consumers, as in the traditional regulatory capture paradigm. When incumbent resource users have weak property rights, they have an incentive to pressure the regulator to allow resource extraction at an inefficiently rapid rate. In contrast, when property rights are strong, this incentive is minimized or eliminated. We build a theoretical model in which different property right institutions can be com-pared for their incentives for exerting influence on the regulator. The main theoretical prediction- that stronger individual property rights will lead the regulator to choose more economically efficient extraction paths- is tested empirically with a novel panel data set from global fisheries. Empirical evidence supports our theoretical predictions and suggests that regulators are significantly more conservative in managing resources for which strong individual property rights have been assigned to firms.