Resource Privatization and Endogenous Production Activities: Can Privatization of a Natural Resource Stock Benefit Labor

Theoretically, it has been shown that privatization of open access resources results in negative impacts on economy-wide wages paid to labor when the technology used in the resource sector remains constant. Here, we examine a case where there is a change in the optimal use of a renewable resource---open access grassland used for ranching becomes private property for tourism -- to show that privatization can improve economy-wide wages in theory. Whether wages improve in practice depends on the nature of the structural change and how labor is used in the privatized activity. To explore the likelihood that wages increase in practice, we use a local general equilibrium model of villages from Chilean Patagonia to investigate the impact of open access grassland privatization on factor wages and the distribution of wealth in an empirical setting.