TITLE:
Voluntarily Relinquishing Private Property Rights: The Existence of Risk-Pooling Equilibria When Facing Environmental Uncertainty
AUTHORS:
Francis E. Raymond, Benjamin W. Raymond
KEYWORDS:
Global Warming, Common Property Rights, Risk-Pooling, Spacial Variability, Dynamic Programming
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.2,
March
31,
2015
ABSTRACT: As weather patterns across the globe change in response to global
warming, we should expect more strain on existing institutions. This paper
demonstrates how weather risk induces farmers into a risk-pooling equilibrium
whereby private property rights are voluntarily relinquished. We find that as
the spacial variability of rainfall increases, rising investment and increased
subplot dispersion are complementary hedges against weather risk. With subplot
dispersion, the cost of preserving private property rights rises, incentivizing
farmers to develop a system of common property rights. In contrast, investment
and subplot dispersion become substitute hedges as weather risk diminishes. We
provide a dynamic theoretical model which complements previous empirical work
on the impact of weather risk on property rights.