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Commons as Insurance and the Welfare Impact of Privatization

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Type: Working Paper
Author: Baland, Jean-Marie; Francois, Patrick
Date: 2003
Agency: Leverhulme Centre for Market and Public Organisation, Department of Economics, University of Bristol, Bristol, United Kingdom
Series: Working Paper, no. 03/069
URI: https://hdl.handle.net/10535/5650
Sector: Theory
Subject(s): common pool resources
property rights
Abstract: "It is shown here that despite the efficiency gains from privatization, when markets are incomplete, all individuals may be made worse off by privatization, even when the resource is equitably privatized. Such market incompleteness is common in the developing world and can explain the often encountered resistance to efficiency enhancing privatizing reforms, especially in the case of village level landholdings and forests. The advantage of commonly held property arises because of its superior insurance properties (which tend to provide income maintenance in low states). Sufficient conditions are established under which any feasible insurance scheme under private property cannot ex ante Pareto dominate allocations under the commons."

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