Revenue-sharing clubs provide economic insurance and incentives for sustainability in common-pool resource systems

•Revenue-sharing clubs can emerge among common-pool resource harvesters.•Revenue-sharing clubs provide insurance to harvesters and improve management.•Clubs can be stable if the insurance benefit is more than the incentive to over-harvest.•These clubs may be a pathway to self-governance in volatile natural resource systems. Harvesting behaviors of natural resource users, such as farmers, fishermen and aquaculturists, are shaped by season-to-season and day-to-day variability, or in other words risk. Here, we explore how risk-mitigation strategies can lead to sustainable use and improved management of common-pool natural resources. Over-exploitation of unmanaged natural resources, which lowers their long-term productivity, is a central challenge facing societies. While effective top-down management is a possible solution, it is not available if the resource is outside the jurisdictional bounds of any management entity, or if existing institutions cannot effectively impose sustainable-use rules. Under these conditions, alternative approaches to natural resource governance are required. Here, we study revenue-sharing clubs as a mechanism by which resource users can mitigate their income volatility and importantly, as a co-benefit, are also incentivized to reduce their effort, leading to reduced over-exploitation and improved resource governance. We use game theoretic analyses and agent-based modeling to determine the conditions in which revenue-sharing can be beneficial for resource management as well as resource users. We find that revenue-sharing agreements can emerge and lead to improvements in resource management when there is large variability in production/revenue and when this variability is uncorrelated across members of the revenue-sharing club. Further, we show that if members of the revenue-sharing collective can sell their product at a price premium, then the range of ecological and economic conditions under which revenue-sharing can be a tool for management greatly expands. These results have implications for the design of bottom-up management, where resource users themselves are incentivized to operate in ecologically sustainable and economically advantageous ways.