This paper examines the effect of transnational property rights on economic activity in the presence of a common pool resource. Taking the example of oil drilling at national borders we examine the strategic incentives for first-mover drilling at borders, where property rights may be weakly enforced.
Weak institutions are associated with increased rent-seeking behavior in drilling activities. We find that the introduction and presence of transnational contracting institutions (agreed to by both countries) are associated with a sharp decline the strategic drilling behavior. Unilateral actions by countries to strengthen property rights around borders does not appear to help, and may even exacerbate strategic rent-seeking.
This paper is a joint work with Torfinn Harding, Thomas Nielsen and Thomas Scaffadi.