Anticipatory effects of regulating the commons

Abstract

We study the regulation of common-pool resources under long implementation horizons. First, we show that future regulation can induce either anticipatory compliance or perverse incentives to accelerate extraction (a “Green Paradox”). Then, we evaluate the early effects of a major groundwater regulation in California that does not yet bind. We assemble new data and compare within pairs of neighboring agencies that face varying restrictions on extraction. Differences in future regulation do not affect measures of water-intensive investments or groundwater extraction today. This lack of anticipatory response in either direction can be explained by time preferences: high private discount rates and/or a long implementation horizon dissipate any anticipatory effects. Common-pool resources face a lower risk of perverse incentives than excludable resources, but private actors still may not comply in advance.