Working Paper No. 13-10

Common Property Resources and New Entrants: Uncovering the Bias and Effects of New Users
Steven M. Smith
November 2013

ABSTRACT

Successful management of common property resources requires cooperation among the users to provide public goods and appropriate the resource fairly and sustainably. Population stability and a relatively low number of users have been identified as important factors to maintaining positive outcomes by increasing trust and decreasing transaction costs. However, empirical work has neither addressed these issues in a dynamic nature utilizing longitudinal data, nor addressed the endogeneity of the user group. Therefore, through econometric analysis I identify the impact of the introduction of new users in a common property management system, distinguishing the impact of being new from that of being additional. Combining satellite imagery and water right transfer records, I build a unique panel data set of 50 communal irrigation systems (acequias) in Taos Valley, New Mexico with annual observations from 1984-2011. With these data I am able
identify the role of repeated interactions and diagnose the extent of omitted variable bias through comparing various econometric specifications. The 400 year old acequias are robust to the introduction of new users but average production decreases with additional users. More notably, there is a positive bias present in cross-sectional treatment for both new and additional users—implying extant cross-sectional analysis underestimates the negative impact of additional users because entrants are attracted to systems that perform better. In regards to the non-negative effect of new users, the result is corroborated through follow up surveys of 17 acequias, indicating institutional rules have been substituted for trust.

 

JEL classification: Q15, Q25
Keywords: Irrigation, Repeated Interaction, Omitted Variable Bias, Acequias

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