Events & Media: Stephen Salant

The Bren School of Environmental Science & Management
at the University of California, Santa Barbara



"The Partnership Solution to the Common Property Problem:
Theory and Laboratory Experiments"

Read the paper on which the talk is based

Stephen S. Salant
Professor, Department of Economics
University of Michigan
Visting Professor, Bren School

Thursday, Jan. 26, 2012
4:00 - 5:00 p.m.
Bren Hall 1424

Extractor effort on common properties is excessive since each self-interested extractor ignores the negative impact of his effort on the productivity of fellow extractors. Similarly, oligopolistic production exceeds the monopoly level since each self-interested producer ignores the negative impact of his sales on the price and profits of fellow oligopolists.

These excesses can in principle be restrained by partitioning agents into partnerships. A member of a partnership bears his own costs but shares equally in the revenues of the partnership. If the right number of partnerships forms, the free-riding induced in each partnership can completely offset the excesses that would occur in the absence of partnerships. The result is socially optimal extraction from a common property. Similarly, the result is monopoly profits earned by oligopolists partitioned into partnerships.

This theory will be described and its performance in controlled experiments will be evaluated. While the qualitative predictions of the theory are borne out, laboratory subjects are less selfish and more altruistic than the theory contemplates.

Stephen Salant is an applied microtheorist specializing in natural resource economics and industrial organization. In his natural resources research, Professor Salant generalized the standard model of exhaustible resources to take account of noncompetitive industry structures and, subsequently, to permit arbitrary spatial configurations of extractors and their customers. Professor Salant also formulated the first model of a speculative attack. Although built to explain speculative attacks in commodity markets, his model was immediately adapted to explain speculative attacks in foreign-exchange markets. The international finance literature on speculative attacks has now grown to thousands of articles.

In his industrial organization research, Professor Salant initiated the literature on the profitability of horizontal mergers and on volume-restricting organizations such as cartels and fishery management councils that select quotas by voting.

Professor Salant was the first co-editor of the Rand Journal of Economics and during its first decade co-organized the biennial Toulouse Conference on Environmental and Resource Economics.

He counts among his distinguished thesis students (and now his co-authors) Carolyn Fischer, who is currently visiting the Bren School, and Matt Kotchen, a former Bren professor who will be visiting later this term.

NOTE: Research colloquia are hosted by Bren faculty members and are generally high-level talks about research in a particular area of environmental science and management.


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