A free lunch in the commons
AbstractWe derive conditions under which raising costs through a regulatory constraint or a fully expropriated tax can increase the profits arising from a common-pool resource. The basic model assumes a fixed number of identical agents with linear costs selling in a single period at an exogenous price. A necessary and sufficient condition for a cost increase to be profitable is that aggregate output from the resource be locally convex in aggregate effort. We also show that cost increases can be profitable even if price is endogenous, agents are heterogeneous, entry is costless, or agents are playing a Markov-perfect equilibrium of a dynamic game. We also discuss more general welfare implications of the result along with its relation to existing results for a Cournot oligopoly.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 61 (2011)
Issue (Month): 3 (May)
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Web page: http://www.elsevier.com/locate/inca/622870
Common-pool resources Cournot oligopoly Policy Profits Welfare;
Other versions of this item:
- Salant, Stephen W. & Kotchen, Matthew J., 2009. "A Free Lunch in the Commons," Discussion Papers, Resources For the Future dp-09-30, Resources For the Future.
- Matthew J. Kotchen & Stephen W. Salant, 2009. "A Free Lunch in the Commons," NBER Working Papers 15086, National Bureau of Economic Research, Inc.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
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