We examine the efficiency of centralized versus decentralized management of spatially connected
renewable resources when users have heterogeneous preferences for conservation
vs. extraction. Resource mobility and heterogeneity induce a spatial externality, while spatial
preference heterogeneity drives a wedge between users’ privately optimal extraction rates.
We first address these market failures analytically and show that the first is most efficiently
handled with centralized planning, while the second is best tackled with decentralized management.
Except in special cases, neither approach will be first best, but which arises as second
best depends on the relative strength of preference heterogeneity versus spatial mobility of the
resource. We illustrate the theory, and test its robustness, with a numerical example.
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