Economic Inequality and Rule Performance in the Governance of Water Resources

Abstract

This paper proposes a theoretical framework to analyze the impact of economic inequality on collective action through its effects on institutions. As suggested by the empirical research, institutions may crucially influence the success with which collective action is undertaken by shaping agents' returns from cooperation. The institutional channel is taken explicitly into account by modelling the relationship between inequality in land distribution and the performance of different water allocation rules. Our analysis offers a theoretical interpretation for the variety of findings in the case study literature. One prediction of the model is that the collective output generated by a specific rule depends on the degree of initial inequality in the economy, weighted by the strategic importance of agents' contributions to the realisation of the collective project.

Keywords: Collective action, Inequality, Allocation rules

JEL Classification: D63, D70, O12, O13, Q25