Exploiting Common Resources with Capital-Intensive Technologies: The Role of External Forces

"Many natural resources can be effectively exploited mainly by using capital-intensive technologies. We develop a bargaining model with endogenous inside and outside options to analyze the interactions between local communities having at least some degree of informal claims over natural resources and external agents, particularly firms interested in commercial resource exploitation. We analyze the effects of three general types of intervention by third-party actors: (i) interventions affecting market power or discount rates, (ii) interventions affecting de facto property rights, and (iii) interventions affecting the opportunity cost of labor. Our results indicate that the strategy of intervention matters. We show that third party interventions that are responsive to the intensity of resource exploitation may have counter intuitive effects. In particular, improvements in the community's bargaining power vis-a-vis the firm are likely to increase resource extraction and thereby harm the environment. Moreover, an increase in the wage rate may increase environmental degradation."