Property rights and the dynamics of renewable resources in North-South trade, Chapter 1

To explain the patterns of world trade of resources, this paper combines the biological dynamics of the renewable resource and game theoretical explanations of its extraction under different property regimes, with a general equilibrium model of North South trade (Chichilnisky, 1981, 1986). The two regions produce, consume and trade two goods using two inputs, a renewable resource E and capital. To expose the importance of property rights in explaining trade, the two regions are taken as identical except for the property rights regimes on the pool from which the resource is extracted: the South has common property and the North private property. The paper formulates the Nash equilibrium of a game which explains the harvesting of the resource under different property rights regimes: more is supplied at each price under unregulated property rights than it is with private property (Lemma 1). Theorem 1 proves that the difference in property rights by itself explains trade between otherwise identical regions: the South exports the environmentally intensive product even though it has no comparative advantage and the North the capital intensive products. The North overconsumes the resource intensive products which it imports at prices which are below social costs. This occurs even though in equilibrium the prices of all goods and all factors of production are equal across the world. Resources are overextracted and the world pattern of consumption and trade of resources is Pareto inefficient. Several policies which could redress the inefficiency, particularly recent property rights policies towards biodiversity and land ownership in the Americas, are discussed in this paper.