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Can incomplete information lead to under-exploitation in the commons?

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  • Espínola-Arredondo, Ana
  • Muñoz-García, Félix

Abstract

This paper analyzes the protection of a common pool resource (CPR) through the management of information. Specifically, we examine an entry deterrence model between an incumbent perfectly informed about the initial stock of a CPR and an uninformed potential entrant. In our model, the appropriation of the CPR by the incumbent reduces both players' future profits from exploiting the resource. In the case of complete information, we show that the incumbent operating in a high-stock common pool overexploits the CPR during the first period since it does not internalize the negative external effect that its first-period exploitation imposes on the entrant's future profits. This inefficiency, however, is absent when the commons totally regenerate across periods. Under incomplete information, we identify an additional form of inefficiency. In particular, the incumbent operating in a low-stock CPR underexploits the resource in order to signal the low available stock to potential entrants, deterring entry.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 3 ()
Pages: 402-413

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:3:p:402-413

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Common pool resources; Signaling games; Externalities;

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  1. Mason, Charles F & Polasky, Stephen, 1994. "Entry Deterrence in the Commons," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 507-25, May.
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  3. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-96, July.
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  6. Apesteguia, Jose, 2006. "Does information matter in the commons?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 55-69, May.
  7. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  8. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  9. Polasky, Stephen & Bin, Okmyung, 2001. "Entry Deterrence and Signaling in a Nonrenewable Resource Model," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 235-256, November.
  10. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  11. Reinganum, Jennifer F & Stokey, Nancy L, 1985. "Oligopoly Extraction of a Common Property Natural Resource: The Importance of the Period of Commitment in Dynamic Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 161-73, February.
  12. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  13. Dutta, Prajit K & Sundaram, Rangarajan K, 1993. "The Tragedy of the Commons?," Economic Theory, Springer, vol. 3(3), pages 413-26, July.
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Cited by:
  1. Ana Espinola-Arredondo & Felix Munoz-Garcia, . "Asymmetric Information may Protect the Commons: The Welfare Benefits of Uniformed Regulators," Working Papers 2013-8, School of Economic Sciences, Washington State University.
  2. Ana Espinola-Arredondo & Felix Munoz-Garcia, . "Entry Deterrence in the Commons with Multiple Incumbents," Working Papers 2012-1, School of Economic Sciences, Washington State University.

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