IERCU
Discussion paper No. 221

The management of common pool resources in tourism destinations:
A simple model analysis of marine resource management

Masahiro Yabuta (yabuta@tamacc.chuo-u.ac.jp)
Faculty of Economics, Chuo University, Japan
Noel Scott (noel.scott@uq.edu.au)
School of Tourism, the University of Queensland, Australia
Takashi Ozawa(ozawa@ns.nijinet.or.jp)
Centre for Research and Promotion of Japanese Islands

March,

2014

IERCU Discussion Paper
Institute of Economic Research
Chuo University
Tokyo, Japan1

The management of common pool resources in tourism
destinations: A simple model analysis of marine
resource management
Masahiro Yabuta (yabuta@tamacc.chuo-u.ac.jp)
Faculty of Economics, Chuo University, Japan.
Noel Scott (noel.scott@uq.edu.au)
School of Tourism, the University of Queensland, Australia
Takashi Ozawa (ozawa@ns.nijinet.or.jp)
Centre for Research and Promotion of Japanese Islands

Abstract
This paper examines the management of marine resources such as coral reefs used as thetourism attractions. From an economic perspective, these marine resources exhibit thecharacteristics of ‘free-access use (non-excludability)’ and ‘competitive use (rivalry)’ and may
be considered common pool resources (CPRs). CPRs tend to be overused in the absence ofcareful management (Ostrom 1990), and indeed in many tourism destinations, tourism
operators and/or tourists have been found to overuse and damage the natural tourism resources
such as coral reefs. Measures to control their usage include regulations (zoning, seasonalutilization, number of users, and tourist activity), and economic incentives (tax or subsidies).
Among these measures, controls on tourism operators, such as restrictions on the number oftourism operators and the boundaries of their activities, are particularly effective in avoiding
overuse of CPRs. This paper provides a theoretical analysis of these measures in managing thecompetitive use of such CPRs sustainable, and examines the implications of entry- and usagerelated regulations in tourism destinations where the major tourism resources are coral reefs.
Keywords
Sustainable tourism, marine resource management, coral reefs, common pool resources, entry
regulations
JEL Classification-Q22,Q26

2

1. Introduction
This paper examines, from a primarily theoretical perspective, the management of marine
resources such as coral reefs in destinations, where the major industry is tourism. An island or
coastal coral reefs, marine activities, such as diving, snorkelling, kayaking and whale watching
are major tourist attractions. Hence, marine resources are resources which tourists and tourism
businesses utilize, and in such destinations, residents often wholly or mainly rely on tourists
for their livelihood. Marine resources, like other common pool resources (CPR) such as rivers,
forests and fish, have two basic attributes; non-excludability in use, and high-rivalry inappropriation. A lack of regulation of usage of CPRs has been found to lead to their overuse or
destruction (Ostrom 1990; 1994; 2002). Unless some restrictions on investment are imposed,
the number of tourism businesses increases, leading to overuse of the tourism resources andenvironmental deterioration of the marine resources such as coral reefs (Yabuta et al. 2014).
For example, while the major cause of the deterioration of coral reefs is global warming, tourist
activities also have destructive effects on many coral reefs and their surroundings (ICRI, 2010).
Therefore, to prevent reefs from deteriorating, the use of coral reefs as tourist attractions mustbe limited within their carrying capacity. This is the same as other tourism attractions which
affect the marine life. To do so, policy measures or governance systems (including selfregulation) must be implemented. The core issues of CPR management revolve around thedesign of policies to coordinate economic incentive measures and the governance system toenforce cooperative resource management in the community. From a supply-side management
perspective, controls on tourism operators, such as restrictions on the number of tourism
operators and the boundaries of their activities, are particularly effective in order to avoid
overuse of CPRs (ICRI, 2010). This paper provides a theoretical analysis of the competitive
use of CPRs in order to assess the effectiveness of these measures in managing CPRs for theirsustainability. In particular, it examines the situation of entry- and usage-related regulations intourism destinations where the major tourism resources are marine-related resources.
The composition of the paper is as follows: after this introduction, Chapter 2 gives a brief
overview of the present condition of coral reefs as an example of marine resources and theiruse in tourism destinations. Chapter 3 gives a theoretical analysis of marine resources as CPRs,
where tourism businesses enter and use them to the extent they have an incentive to enter the
tourism market. Chapter 3 also assesses the effectiveness of procedures to regulate their use, inparticular, controls on the number of entries using a game-theoretic framework. Following thetheoretical analysis of governance systems of CPRs, Chapter 4 provides an example of how
management systems to control the entry and operation of tourism operators in and around themarine resources actually operate. In this relation, as a typical example of the coral reef area in3Japan, the paper mentions the Kerama Islands and overviews the situation of the marine tourism
resource management, while its socio-economic aspects will be examined by Yabuta et al.
(2014) which focuses the severe restrictions on the number of diving businesses and theirrelated activities. The theoretical analysis and actual CPR management systems are comparedand some effective policy measures to make CPR use sustainable are identified. Lastly, Chapter
5 provides conclusions and remarks on the findings of the paper.

2. Tourism development and marine resources as CPRs
Before giving a theoretical analysis of the management of CPR, we shall investigate theattributes of marine resources such as coral reefs and whales as the tourism resources. Tourism
resources such as wildlife in natural areas and coral reefs in marine zones need to be wellmanaged by related stakeholders to maintain the sustainability of tourism development. The
reason why the tourism development has tended to fail to preserve the natural environment isthat some stakeholders have been concerned only with the economic benefits, not concernedwith the marine's environmental value and its benefit for future generations.
Ostrom (1990) and Ostrom et al. (1994) studied approaches to governing CPR and found thatthe stakeholders in the community need a management system with rules that enables it to
manage the use of CPRs. The special attributes of a CPR are their low ‘excludability’ and high‘rivalry’. CPR can be used by all but a particular person's use of the CPR can also conflict withthat of another. In tourism destinations, where the major tourism resources are nature-related,
the resources tend to be overused because they are CPRs. This has happened in many marine
areas of coral reefs when tourism businesses are set up in an unrestricted fashion. The same
situations occur in a case of whale watching where too many vessels tend to entry the business.
Congestion in usage leads to ‘over-exploitation’ and increase the risk of destroying the naturalenvironment. Recreational diving, for example, has been reported to have the serious impacts
on coral reefs (Hawkins and Roberts 1994; Harriot et al. 1997). Harriot et al. (1997) found thatdivers contributed intensively to environmental damage in the Marine Protected Areas ofEastern Australia. Hawkins and Roberts (1994) discussed the development of coastal tourism
in the Red Sea and highlighted the damage to coral reefs caused by tourism attractions and by
tourist activities.
The common pool approach is useful to investigate what may happen to natural resources suchas coral reefs unless they are managed properly. Inadequate use or over-exploitation of
resources in this way is a type of market failure and is called an externality of the CPR.
Examples include the phenomena that Hardin (1968) named ‘the Tragedy of the Commons’.

4

Without a proper management of CPR, it is impossible for a community to keep tourism
development sustainable. The close relationship between CPR management and tourism
development has been investigated by Healy (1994; 2006), Steins and Edwards (1999),
Bosselman et al. (1999), Briassoulis (2002) and Blanco et al. (2009). These authors haveemphasized the need of the common pool approach and investigated the principles of the policy
design and the management system.
A number of traditional policies such as command-control and economic incentives along withvoluntary governance mechanisms have been discussed to keep CPR sustainable. In empiricalstudies, factors which determine the effectiveness of CPR management system used bystakeholders include group size, frequency and durability of interactions, heterogeneity of thegroup, design of the institutional framework, and characteristics of CPR (Ostrom 1990; Berks
2006; Huybers and Bennett 2000; 2003). Huybers and Bennett investigated the case of TropicalNorth Queensland and showed that small scale, close proximity, locality and homogeneity ofthe tourism businesses operating in the limited tourism areas contributed to establishing adurable management system with various cooperative activities. Moreover, the nature-based
tourism relies on the natural environment as its attraction so that its sustainability must be a key
concern of stakeholders.
Prior researchers have primarily focused on regulatory measures used by government
institutions for environmental preservation, whereas many kinds of CPR are self-governed andwhere the stakeholders are self-organized. In this regard, a sufficient condition for stakeholders
to organize and operate these self-governing organizations effectively is their use of designprinciples underlying robust and long-living self-governed institutions (Ostrom 2002, 2009).
Effectively designed management system, including institutions, incentive systems and set ofrules should lead to the sustainability of the natural tourism destination. As far as the marine
resources are concerned, institutions such as fishery cooperatives have played a primary role inpreserving the marine resources. On the other hand, co-management of fisheries with otherresource stakeholders has been expanded to the management of marine resources (Pomeroy
1995; Jentoft et al. 1998; Makino et al. 2009). Makino et al. (2009) found that Shiretoko, oneof three World Natural Heritage Sites in Japan, provided an example of good practices whereby
a wide range of stakeholders from many sectors established an integrated management systemthrough an initiative by fishery cooperatives. Although they did not focus on the tourism sector,
their analytical method can be interpreted from the viewpoint of common pool approach.

5

3. Cooperative management among stakeholders - A model framework
3.1. Assumptions
In this paper, the standard Gordon-Schafer model is employed (Burton 2003; McCarthy et al.
2001). In this model framework, an equilibrium that keeps the stock of CPR constant always
exists whatever the individual resource use is. Therefore, incentives among stakeholders tocooperate come only from whether their profit from CPR use will increase or not. Unlike thismodel, cooperation motives among people should also be derived from the insecurity ofunsustainable resource use. A negative externality of CPR has explicitly occurred from theinappropriate use of marine resources through tourism activities. The relationship between the
resource use and its negative externality should be considered in a theoretical setting. It is very
likely that the more CPR is used, the more the negative externality increases.
To confirm how many tourism businesses enter the market, a series of entries of the businesses
is assumed (see the following figure). In this regard, we assume heterogeneity among tourism
businesses which have different cost structures (Burton 2003), due to differences in location
and/or skills of each business manager. The marginal cost of operation is assumed to increase
gradually.
Figure 1 Access to CPR
Block the new entry
Pre-entry

Establish

Entry

Non-Cooperation(Monopoly)

AcceptNew entries

i= 0 i=1

Cooperation

i= 2

i= 3

(Management or policy dimensions)
Initial development

Further development

Controls or regulations
Rules and Usage – Setting- Reinforcement, Revision

Organization – Building- Maintain, Extension* i is a number of entrants

6

3.2. A basic model
We shall incorporate a Gordon-Schafer type of appropriation of CPR, which gives marine
biological aspects of the resource use. The amount of CPR use, Ri, by an individual business i,
depends not only its efficiency but also the effort in providing tourism services, Ei. In a wellpreserved eco-system, a marine resource such as coral reefs can provide high densities of floraand fauna, leading to easier access to them by tourists. An increase in the number of visitors
may result in large scale structural damage to the coral reef and surroundings. This situation
can be given by:(1) Ri  q Ei X , q  0 ,and the total appropriation will be:(2) R   Ri   qEi X  qEX .
X in equation 2 shows the amount of marine resources available. It is hard to estimate therecovery process of marine resources because of the complexity of ecosystem resilience,
depending on its disturbances of changes. In this regard, by analogy with fishery resources, weshall assume a logistic growth function for a marine resource:(3) G ( X )  rX (1  X / K ), r  0 ,With no extinction by tourism activities, their amount must be K. Once tourism has developed
there, it will decline to Xt.
(4) R  G( X )  X t  K (1  q( Ei ) / r ) .
If degradation of the coral reef is severe, then X would approach zero and no tourism activities
would be undertaken. In this formula, we shall assume 0    X t / K  (1  q( Ei ) / r )  1 , where 
is a degradation rate of the marine resource. Whether the coral reefs, for example, can recover,or whether their healthy condition can be kept in dynamic equilibriums, clearly depends on not
only how many tourism businesses access it, but also how much effort required in producing
the tourism services. With a complex and dynamic ecosystem with resilience it is difficult topredict how much tourism activity should be accepted in the area. The risk factors include not
only the high fragility of coral reefs and their environment, but also a tendency to their over-7

exploitation as CPR. Then, the community should take measures to avoid these risks andestablish an effective management system.
Let us examine what will happen if there is no restriction to access the CPR. At the beginning,assume only one tourism business (i=1) enters the market. This business may be the most costefficient as it can adopt the most favourable geographic and technical conditions to provide
tourism services. A cost function assumed by Burton (2003) is employed here in order to allow
heterogeneity among businesses:(5) Ci  c   i, c,   0,
Then, the profit to be maximized becomes:(6)  i  PRi  Ci Ei  tPRi
where P is the price of the resource use and t is a tax on the resource use. The result will be(7) E1 (8)  1 

pqK  c  , p  (1  t ) P
2 pq 2 K / r[ pqK  c   ]2
4 pq 2 K / r

In this case, the degradation rate of coral reefs becomes:(9) 1 

1 c 
 1  E1  0
2 2 pqK

Next, assume another business intends to enter the market. It will operate to the extent it obtains
profit. If both two businesses are assumed to behave as the Cournot-Nash competitors, theoutcomes will become:
(10)

E12 

(11)

 12 

pqK  c2

, E2 2 

3 pq K / r[ pqK  c]2
9 pq 2 K / r,  22 

pqK  c  32

, E 2  E12  E2 2 

3 pq K / r[ pqK  c  3 ]2
9 pq 2 K / r

2[ pqK  c  3 / 2]
3 pq 2 K / r.

A sufficient condition for a possible new entry is pqK  c  3  0 . The degradation rate of coral
reefs becomes:
(12)

2 

1 2c  3.

3 3 pqK

From (9) and (12), we may see that whenever a new entry is possible, the degradation rate ofcoral reefs will decrease because 1   2 . After the entry, each business shares the benefits fromthe CPR use as follows:(13) 1 2   1 and  2  12   2 2  1 .

8In this regard, we can determine the following results; (i) after an entry of the business, total
profits will decrease although the total efforts increase, (ii) the first comer will lose its profit
because its effort will decrease due to a second one’s entry, and (iii) a degradation of coral
reefs occurs because of the large appropriation by tourism activities. Therefore, both
environmental situation and economic outcomes will deteriorate due to a new entry and anincrease in the number of businesses.
Now assume that further entry into the market has continued. It is difficult to fix the behavior
in the case with three entrants or more because they could compose various patterns ofcooperation among them, such as coalitions and alliances. For example, there are six patternsof competition for the three entrants. One possible case can be given by:
pqK  c  2
pqK  c  2
pqK  c  6 3
3 3[ pqK  c  2 ]
3
3
3
E 
, E2 
, E3 
, E   Ei 222(14) 1
4 pq K / r
4 pq K / r
4 pq K / r
4 pq2 K / r222(15) 13  [ pqK  c  2 ] ,  23  [ pqK  c  2 ] ,  33  [ pqK  c  6 ]16 pq2 K / r
16 pq2 K / r
16 pq2 K / r
A sufficient condition of the third business to enter the market is.The degradation rate of coral

reefs becomes:
(16)

3 

1 3c  6
4 4 pqK

These conditions indicate that:(17)

E1  E 2  E 3 ,  1   2   3 and 1   2   3 .

As shown in equation (17), a new entry will lead to increased effort, but to reduced profits, andcause the environmental situation of coral reefs to deteriorate.
To make the analysis simple, we shall assume that the third business doesn’t enter the market
because the condition pqK  c  6  0 is not satisfied. Accordingly, a high cost could block its
effort to produce tourism service. Then, only two businesses remain in the market, whose
outcomes are shown by equations (10) - (13). Competition between the first and the seconduser of the CPR, (or non-cooperative use of the CPR), can lead to a deterioration of both theenvironment and the economic profit. Therefore, the problems to be assessed here are as
follows; firstly, what makes it possible for the first appropriator to block the new entry?
Secondly, can a behavioural change of businesses from the non-cooperative to cooperative
improve not only the environmental situation but also the economic condition as well? Thirdly,
if it is so, what conditions encourage them to cooperate with each other to share the use of9

CPR? The first and the third questions are issues about the management or governance of CPR
and will be investigated in the next Chapter.
Figure 2 illustrates the outcomes after the entry of the second business. Figure 2 indicates boththe cooperative and the non-cooperative situations. A monopolistic equilibrium before theentry is also depicted at point M in Figure 2, where the profit which the first appropriator gains
is maximized. A non-cooperative equilibrium is examined when two businesses behave as the
Cournot-Nash competitors. In this regard, we shall investigate what will happen if they change
their behaviour towards the cooperative actions. The reaction function for each business isgiven by:(18)

E2  2 E1 
2

2

pqK  c  
1 2 pqK  c  22
, for i  1 and E2   E1 
, for i  2 .
22
pq K / r
2 pq 2 K / r

Then, the intersection point CN(=(E12,E22)) gives the Cournot-Nash equilibrium, where eachbusiness gains the profit of πi2 (i=1,2).The iso-profit curve for each business can be depicted
as in Figure 2. An iso-profit curve for i=1 is given as an upward hump-shaped curve, whereas
an iso-profit curve for i=2 can be drawn by the one with rightward hump-shape. In this regard,
it should be notable that the iso-profit curves of π1 = π12 and π 2 = π 22, together pass throughCN and that an upward shift of π1, or a rightward shift of π 2, leads to a profit reduction.
Therefore, as shown in Figure 2, cooperative behaviour to reduce their efforts from CN to thesouth-west could easily increase their profit. In particular, any change from CN to a point on
the contract curve (C-C line), can produce an economic betterment for both businesses (see the
Appendix for a mathematical proof). Intuition suggests that this conclusion is unacceptablebecause a reduction in the effort for appropriating CPR by each business would have a negative
effect on profit. However, this is not practically possible because a decrease in the effort
reduces the cost and increases the stock of CPR, possibly leading to an increase of profit.
The above discussion highlights some strategic issues in the design of a governance systemthrough which all stakeholders in the community with marine resources cooperate in order toincrease their welfare. Firstly, there is an issue about the scale or the scope of community
participation. The stakeholders should not be limited to businesses, but include all community
members involved in the CPR use. Government should play a key role as a planner or mediator,
and residents also support or give their opinions to preserve their environment. Accordingly,
their cooperative activities for improving the economic and social situation of the community
should be considered. Secondly, there is an issue related to the excludability of CPR, namely
the possibility of the community to reject or regulate a new entry of the tourism business. In
this regard, we have to see what governance systems operate in the community. Fixing the10members who are entitled to use CPR and allocating the use of CPR among members are thecentral issues of the management system of CPR, which Ostrom (1990) classified as ‘boundary
rules’ and ‘allocation rules’ respectively. In order to avoid an over-use of CPR, controlling thenumber of business members is important, whereas fixing the members is hard because CPR isbasically non-excludable and any actions to prevent a new comer from using CPR violates the
freedom of businesses. Thirdly, there is an issue about how to direct an individual's attention
towards cooperative behaviour through a sense of public duty. As we have already shown, thecompetitive outcome with free entry might not be the best solution for the community. Besides,a cooperative adjustment by stakeholders can lead to a better situation from both the economicand environmental perspectives. However, even if this is true, each stakeholder may hesitate to
reduce their effort as an individual contribution because it requires self-sacrifice. In the end,
there is an inherent contradiction between self-interest and personal recognition of social
benefits. Then, a governance system, in which people tend to think about their total outcomesfrom the social perspectives, should be established based on the human relationships among
stakeholders, particularly businesses. Whereas it might be induced by a governmentalorganization, the rules and institutions implemented by the governance system will guarantee
the community’s expected benefits are distributed among its members.

Figure 2 Cooperation and non-cooperation
E2
i=1

π 22
N
E22

C

CN
π12

C
O

E12

M

i=2
E1

11

3.3 The Management System
3.3.1. The first stage; Why at M?
A management system can be established by those who have a common recognition of the risk
and a willingness to bear its cost. Each member of the community would follow the governancesystem composed of rules or other traditional customs about the use of CPR, by which anindividual member could estimate how much he or she should pay for the risk burden.
Accordingly, the management system includes the boundary rules and the allocation rules(Ostrom et al. 1994). Approved users of a CPR are limited within a geographic and a social
scope, and their usage and process of using CPR is strictly limited. In this regard, the first issueof the management system is about an initial condition of the boundary rule. Even with a single
or monopolistic-like business (see Figure 1), there must be some institutions in which thecommunity operates together to accept businesses and to assure the scope and scale of theiractivities. Self-designed institutions or community-based institutions led by the government
can maintain enduring CPR use. As far as the model analysis adopted here is concerned, theoutcome would be well managed from a sustainability perspective because no issue of
externality of CPR, such as an over-use of CPR, occurs.
Before the entry of the newcomers occurs, the governance system does not need to include
regulations on business activities. Rules are conducted mainly on the other fields of thecommunity activities, such as joint waste management, cleaning, festivals, and social welfare.
Even in a small community, however, it may be impossible to eliminate intentions to breakrules, mainly because of a sense of free-riding. A member tends to free-ride not only byskipping the community meetings or obligation-work, but also by cheating the community
through the dishonest use of CPR. Then institutions must be designed to avoid such behaviour.
In general, a community has various mechanisms to avoid dishonest behaviour, such as
penalties, rewards and social sanctions. However, these mechanisms only work if thecommunity can implement a monitoring system to watch the behaviour of its members. Besides
members, outsiders plundering of the CPR should be also monitored. This leads to a steep
increase in the monitoring cost, although this depends on the social and geographicalaccessibility of the CPR. If the community pays for the monitoring cost alone, the overall costof cooperative management may exceed its benefit, leading to a collapse of the management
system. Then, some other measures, such as collaboration with other communities or sanctions
by a higher government, must be also incorporated into the management system of the12community. Therefore, all these facts lead us to a conclusion that the governance system in thecommunity would have various patterns depending on its historical and geographical situation.
3.3.2. The second stage with entry; From M to CN or staying at M?
The second-stage issue of the management system is about the additional boundary rules to beembedded in the governance system. The question is what makes it possible, or impossible, forthe first appropriator to block the new entry. This problem relates to the procedures for how tomanage a competitive market and its regulations. Most countries have an anti-monopoly policy,
or equivalently a de-regulation policy, in order to eliminate inefficiency through market-failure.
This basically prohibits any procedures to block a new entry into the market. In a real world,
however, some restrictions on the new entry have been enforced in various markets or industries
to protect the existing businesses or maintain environmental standards. Whereas our case isabout the regulation of a small tourism site, which is carried out within a geographical area, it
would not make any difference what the government-led regulations justified. The major
motives to regulate businesses in a small area may include the same reasons as those forinternational trade or the domestic market, to protect interests. To enforce regulations to block
the new entry effectively, a new institutional design should be incorporated to amend theboundary rules. In a case, a local government would adopt a new local ordinance, and in anothercase, a self-organized private institution or an institution based on a private-public partnership
might be established. Moreover, their legal basis may be provided by the central governmentso as to attain an effective outcome.
3.3.3. The third stage; Cooperative behaviour; From CN to C-C?
Assume that a governance system permits the tourism businesses to entry the market, and it
leads to a competitive equilibrium, CN. On the other hand, the businesses know that if theytake a cooperative action to reduce their effort towards C-C, they can get more profit than at
CN. However, each business clearly has no incentive to reduce the effort, unless they areconvinced that other businesses will also reduce their effort. This is because if business 1, asshown in Figure 2, reduces its effort downward from CN, its profit will decrease whereas the
profit of the other business will increase. Therefore, business 1cannot be certain that the otherbusiness would reduce their effort. Accordingly, a conjecture about the behaviour of the otherbusinesses could never direct each business towards cooperation.
In this regard, a community needs a governance system to establish organizations or new rules,
by which all businesses can establish a trustworthy relationship to control their effort. This13

might include not only a self-governance institution organized by tourism businesses, but also
a community-based institution with wide-ranged stakeholders including residents and otherbusiness groups. Hence, the scope of issues to be solved in the community will determine therange of participants in an organization. If it is a business matter, the organization must include
only businesses. However, if it is a matter beyond the business, such as the environmental
preservation, the institution should be designed to include all the stakeholders concerned.
Degradation of coral reefs caused by tourism-related activities not only affects their businessoutcomes, but also damages the society due to an overall deterioration of the environmental
situation. An approximation assumed in the Appendix shows us that after cooperation, thedegradation rate of coral reefs will be improved by [ pqK  c] / 6 pqK .On the other hand, anaggregate profit will increase by [ pqK  c]2 / 36 pq2 K . Therefore, any policy measures exert agreat influence upon all people in the community. Then, the institution should be planned andfacilitated so as to involve all the residents and businesses in its establishment and enforcement.
Thus, many stakeholders have to move in coordination with each other to use CPR more
efficiently.
3.3.4. Policies by means of economic incentives
The model framework developed above includes a tax on resource use. In the tourism sector,
there are many types of taxes levied on businesses or visitors. In natural tourism sites, taxes or
charges on the resource use include admission taxes, reef taxes (the environment management
charge (EMC) in GBR). Theoretically, the effect of a change of the tax rate or introduction of
new taxation on the degradation rate and the effort level of each stage will be given by:
(19)
(20)

dE1
c 
dE 2
c  3 / 2

 0,

 0,
2
2
dt
2(1  t ) Pq K / r
dt
3(1  t ) 2 Pq 2 K / r

d1
c
d
2c  3 0, 2  0.
2
dt 2(1  t ) PqK
dt 3(1  t ) 2 PqKWhereas the tax reduces the disposable income of businesses, some of the tax revenues are also
expended in terms of preserving CPR or subsidies for the tourism sector. However, themechanism of tax revenue and its expenditure is not clearly explicated. Even if a Pigouvian tax
levied on the business activities to avoid the externality of the market, the efficient level of the
tax rate on CPR use is hard to attain a required equilibrium. As far as the second stage isconcerned when a non-cooperative outcome occurs, the tax rate can be adjusted properly torestore the efforts on CN to those on C-C. Theoretically, if the tax is imposed at the rate;(21)

t*  1 c  3
 (0,1) ,PqK

14

the degradation rate will be improved to 1 in (9), the same level before the entry. However,(21) indicates that without knowing about both the cost structure of the new entrants and about
the ecosystem of regeneration of coral reefs, it is impossible to estimate the adequate tax rate.
Moreover, introducing a new tax generally tends to cause friction between the tax payers andits beneficiaries.
In the manner explained above, there are many deficiencies in taxation as a mechanism.
However, taxation is a reliable policy measure to change the visitors’ choice to access thetourism site. Obviously, introducing and adjusting the taxation would inflict a loss of thecommunity due to a reduction of tourism demand. Therefore, it should be carried out by agovernmental authority, leading to a governance system in which the community is involved.
Even though the policy targets are the same each other, the governance system with taxation
proposed by the community-based organization should be different from that proposed by thegovernmental initiative. Hence, the governance system should be investigated on a case-by casebasis.
4. Implications of the model analysis – an application to the case of Coral Reefs
management in Kerama
The theoretical perspectives developed above shows us an important implication that noncooperative behaviour among stakeholders can lead to an inefficient outcome of the highenvironmental burden and low income. Investigate the case of the Kerama Islands where there
is a conflict between the diving operators in the Kerama Islands and from Okinawa, both using
the diving spots around the Kerama Islands. Because coral reefs as the tourism resources arecharacterized as a CPR, business people tends to overuse them and leads to degrading the coral
reefs’ environment. Hence, the stakeholders in and around the Kerama Islands together
cooperatively establish the management system to attain the sustainable resource use (SeeYabuta et al. (2014) for the details about the current environmental situation and thedevelopment process of the governance system of coral reefs.)
Here, we shall give a brief sketch of the recent development of the management system
concerning regulations on diving operators and activities in the Kerama Islands. Many
researchers have pointed out the conservation issues of coral reefs in the Kerama Islands(Fujisawa (2006), Takahashi (2007), Maruta (2011) and Taniguchi (2003)). They have argued
about the effective measures to conserve the environment of the coral reefs and to avoid theirdegradation caused by the diving businesses, and mentioned the need of cooperative
management of diving operators not only in the Kerama Islands but from Okinawa. The Kerama

15Islands areas are certified by Ecotourism Promotion Law 1 in 2012, and announced theCollective Vision to Promote Ecotourism in the Kerama Islands in order to satisfy both theenvironmental protection and the development of tourism, focusing on the scuba diving
activities. Although various efforts have been made to tackle the environmental issues, there
are still environmental issues to overcome. One is the over-use of coral reefs caused by too
many numbers of operators, about 60 in Kerama and 150 from Okinawa, and the other is a freerider issue who use the coral reefs for diving activities but has no intention to take part in theactivities to protect the coral reefs. They, manly from Okinawa, do not necessarily join the
diving associations in Kerama Islands2. Zoning of marine areas and regulation of the diving
activities, mainly restricting the number of visitors, are the major effective regulatory measures
to protect the coral reefs. Hence, the Collective Vision to Promote Ecotourism in the Kerama
Islands mentioned the allocation issue and shows that there is the coordination failure among
diving operators.
Table 1 is a summary of the policy measures to control the use of coral reefs indicated by theCollective Vision to Promote Ecotourism in the Kerama Islands. In order to protect theenvironment of coral reefs, it designated the specific area of the Kerama Islands, in accordancewith the Ecotourism Promotion Law. It is named ‘the Coral Reefs in Kerama Islands’, the range
shallower than 30 meters around each island. Then, it basically regulates any activities there
except for the swimming area of the beach whereas fishery and other emergency activities, andthe activities that will contribute to the improvement of the residents’ welfare such as festivals
and education are allowed. It is notable that the Collective Vision to Promote Ecotourism in the
Kerama Islands also sets the maximum number of users of diving activities as the half of thecurrent users. In this regards, it also notes that regulations on usage in the Coral Reefs inKerama Islands can be reviewed from the fairness among users and from the otherenvironmental aspects. Currently, the volunteers, membership fees and public funds support
these policy measures to protect the environment, although these management expenses are notenough for making these actions effective.
Currently, though there still a lot of issues to be solved, the diving spots in Kerama seem to bewell-shared between businesses in Kerama and those from Okinawa. This is because they musthave reached an agreement about CPR use, whereas this agreement is set in an implicit way
that there is no legal basis. From the theoretical perspectives, this means that they happen to be
on a point towards Pareto superior point between C-C in Figure 2. As mentioned before, coral

1 Ecotourism Promotion Law of Japan was enacted in 2008.
2 This is one of the ‘Common Pool’ issue. Nobody has property right of the coral reefs, and nobody can exclude the use ofsomeone else. Hence, this would lead to an overuse of the coral reefs as the tourism resources. Therefore, an effective
management to reduce the usage of the resources should be implemented as the model analysis showed in Chapter 3.

16

reefs in the Kerama Islands are CPRs not only to Karama, but also to Okinawa. Therefore, thisagreement implicitly attained is so fragile that some small changes in the policy concerning
sharing the resource-use should alter the equilibrium, leading to an ineffective allocation of theresources.

Table 1 A summary of the policy measures to protect coral reefs in the Kerama Islands

Tourism
Designation ofmanagement inspecific tourism
Kerama Islands inresources
accordance of EPL

user control

Effective
Protection andsetting the criterion
Combination ofdevelopment of the
Education of related
Monitoring andto set the restricted
Regional
Properly Marketing
specific tourism
Stakeholders
Study
areas
Community andresources
Networking

Organization forprotective use of the
Sustainability
Codes of conduct
Zoning as the Regulation of theCoral Reefs inConsulting Fostering awarenessIndicators such as
Area protection by
for the stakeholders
Policy Measures specific area of coral maximum number ofKerama Islands and stakeholders and the and knowledge of
Monitoring sitezoningfollowing
reefs.
diversmembers who joinpublicecotourism
1000 by Ministry
ecotourism
the Ecotourismof the Environment
Promotion Council

Decisionmakers/related
subjects

head of villages

Remarks

Capacity-building Cooperative talks between operators in
Ecotourism/
Monitoring systemstrategy among local Kerama and from Okinawa( Resource Integral Education Understanding on
Fishery management/ Restriction ofand skill/Data baseallocation among conservation reform/Pilot project serious impacts/
residents/
number of visitors/Carrying Capacity ofsystem of
Local planning for agencies/Effective management of the for an environmental Participation ofvisitors/Control of diving points
monitoring forconservation agencies including fund education program local people on
tourism
ecosystem
raisingdevelopment
tourism/

head of villages

Cooperative
Cooperative
head of villages Participation of all Participation of all
stakeholders
stakeholders

businesses,
residents andchildrenbusinesses

Cooperative
Participation of all
stakeholders

5. Concluding remarks and further notes
The theoretical perspectives developed above shows us an important implication: A noncooperative use of CPRs leads to an inefficient outcome including over-exploitation and17environmental destruction of CPRs. Non-cooperativeness may be originated by theheterogeneity itself among stakeholders who do businesses in different regions or in different
styles because strangers are always different. However, even so, as far as they have to share thecommon resources such as tourism natural resources, it is efficient for them to go to a point on
a contract curve through a cooperative manner, meaning that they should have reached anagreement that allows them to a Pareto superior situation.
In Kerama, stakeholders who use coral reefs as the tourism attraction both in Karama and from
Okinawa seem to reach an implicit equilibrium (For the details, see Yabuta et al. (2014)).
However, the fact is they further need to restrict the usage of the coral reefs together. Further
regulations on the resource use will be towards the more difficult aspects.

Appendix
Total differentiation of (6) makes it possible to determine the shape of the iso-profit curve foreach business rigorously.
dE2
1  pqK  c  
 2 E1  E 2 ,(A-1)
i 1 
2
dE1
E1  pq K / r



dE2
E2  pqK  c  2 E1
 E2 
i 2 
2
dE1
2  2 pq K / r
2


1

Then, as far as the first business is concerned, it is proven that a gradient of the iso-profit curvechanges from positive to negative when it crosses the reaction function from left to right. Hence
its iso-profit function will become convex upwards. On the other hand, as for the second
business, its iso-profit curve will become convex rightwards. They are depicted by Figure 2.
Next, the contract curve between two business s will be investigated. Geometrically, it isdefined as a set of the points where the iso-profit curves of each business come in contact witheach other, being indicated by the curve l, or its subset C-C, in Figure 2. The contract curve canbe derived by the following procedure. By definition, it must satisfy
(A-2)

dE2
dE2
i 1 
i 2
dE1
dE1

Then, we have(A-3) {( E1 , E2 )  l

where a 2( E1  E2 ) 2  3a( E1  E2 )  a 2  a ( )(a  a ( )  5( E1  4 E2 / 5))  0} ,pqK  c
, a( )  2
2
pq k / r
pq K / r

18

The last term in (A-3) can cause a disturbance of the contract curve. However, if the differencein marginal cost between business s is so small that its effect could be neglected, then an
approximate expression of the contract curve can be given as(A-4) {( E1 , E2 )  l

1
E1  E2  a }2

Therefore, the contract curve can be approximately expressed by a straight line to join N and
M in Figure 2. To compare CN with the points in C-C, for example, it is obvious that eachbusiness can get not less profit in C-C than in CN. This means that any activities to reduce aneffort from CN to C-C can improve their economic outcomes.

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