On the redistributive impact of privatizing a resource under imperfect enforcement

Abstract

We consider the redistributive effects of privatizing a resource previously exploited under free access. We assume that illegal extraction is punished but that the sanction is bounded by individuals' wealth. First, we show that a segment of intermediate-wealth individuals is the most adversely affected from the regime change, while the poorest segment is not only less severely affected, but may actually gain from it. Next, we show how the authorities may prefer to choose an intermediate enforcement level in order to maximize the political acceptability of the regime switch among the local community.