IZA DP No. 13652: Low, High and Super Congestion of an Open-Access Natural Resource: The Autarky Case
Production of commodities based on open-access renewable natural resources (NR) has usually been examined under "low" congestion (LC) – where MC > AC and both increase with output. I identify two additional congestion categories, "high" (HC) and "super" (SC) congestion – where AC is backward-bending and MC < 0. Using a general equilibrium model, I derive the open-access impact on steady-state welfare, NR, sectoral employment, output and price, relative to optimal regulation. The main findings are: i) Welfare and NR losses under SC (HC) are one or more orders-of-magnitude greater (between a multiple and one or more orders-of-magnitude greater) than under LC; ii) These results are robust to alternative parameter values and functional forms, raising confidence in them and thus in regulation's importance; iii) One such regulation, an optimal tax, raises (reduces) the commodity's output and reduces (raises) its price under SC (LC and HC), generating significantly larger gains under SC. A companion piece examines the issue under openness to trade, showing that, though an increase in population unambiguously worsens open-access NR and welfare under autarky, this need not be the case under trade.