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The Optimal Number of Firms in the Commons: A Dynamic Approach

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Author Info

  • Charles F. Mason
  • Stephen Polasky

Abstract

The authors consider a common-property resource sold in imperfectly competitive markets. There is a dynamic externality (current harvests lower future stocks, raising future harvest costs) and a static (crowding) externality. Increasing industry size raises costs but lowers prices; thus, it has ambiguous welfare effects. The optimal industry size typically changes over time, so that a first-best outcome cannot be obtained with a fixed number of firms. Single-firm exploitation is optimal only under special circumstances. The socially optimal open loop steady-state industry size corresponds to the static optimum; both generally differ from the closed-loop steady-state optimum.

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File URL: http://links.jstor.org/sici?sici=0008-4085%28199711%2930%3A4b%3C1143%3ATONOFI%3E2.0.CO%3B2-E
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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 30 (1997)
Issue (Month): 4 (November)
Pages: 1143-60

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Handle: RePEc:cje:issued:v:30:y:1997:i:4:p:1143-60

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Citations

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Cited by:
  1. Benchekroun, H. & Ray Chaudhuri, A., 2008. "Collusion Inducing Taxation of a Polluting Oligopoly," Discussion Paper 2008-80, Tilburg University, Center for Economic Research.
  2. Damania, Richard & Bulte, Erwin H., 2007. "The economics of wildlife farming and endangered species conservation," Ecological Economics, Elsevier, vol. 62(3-4), pages 461-472, May.
  3. List, John A. & Mason, Charles F., 2001. "Optimal Institutional Arrangements for Transboundary Pollutants in a Second-Best World: Evidence from a Differential Game with Asymmetric Players," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 277-296, November.
  4. repec:ags:mareec:7956 is not listed on IDEAS
  5. Lori Bennear & Robert Stavins, 2007. "Second-best theory and the use of multiple policy instruments," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 111-129, May.
  6. Charles Mason & Stephen Polasky, 2002. "Strategic Preemption in a Common Property Resource: A Continuous Time Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(3), pages 255-278, November.
  7. Nori Tarui & Charles Mason & Stephen Polasky & Greg Ellis, 2007. "Cooperation in the Commons with Unobservable Actions," Working Papers 200711, University of Hawaii at Manoa, Department of Economics.
  8. McCarthy, Nancy & Sadoulet, Elisabeth & de Janvry, Alain, 2001. "Common Pool Resource Appropriation under Costly Cooperation," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 297-309, November.
  9. repec:ags:mareec:28268 is not listed on IDEAS
  10. Ellis, Christopher J., 2001. "Common Pool Equities: An Arbitrage Based Non-cooperative Solution to the Common Pool Resource Problem," Journal of Environmental Economics and Management, Elsevier, vol. 42(2), pages 140-155, September.
  11. Basak Bayramoglu, 2006. "Transboundary Pollution in the Black Sea: Comparison of Institutional Arrangements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 35(4), pages 289-325, December.
  12. Mason, Charles F. & Phillips, Owen R., 1997. "Mitigating the Tragedy of the Commons through Cooperation: An Experimental Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 148-172, October.
  13. Lin Lin & Hsien-Chang Kuo & I-Liang Lin, 2008. "Merger and optimal number of firms: an integrated simulation approach," Applied Economics, Taylor & Francis Journals, vol. 40(18), pages 2413-2421.
  14. D. Dragone & L. Lambertini & A. Palestini & A. Tampieri, 2012. "On the Optimal Number of Firms in the Commons: Cournot vs Bertrand," Working Papers wp856, Dipartimento Scienze Economiche, Universita' di Bologna.
  15. Chermak, Janie M. & Krause, Kate, 2002. "Individual Response, Information, and Intergenerational Common Pool Problems," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 47-70, January.

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