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The Commons with Capital Markets

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  • Colin Rowat

    ()

  • Jayasri Dutta

    ()

Abstract

We explore a dynamic commons problem and assess the welfare consequences of access to capital markets. The commons has a high intrinsic rate of return but its fruits cannot be secured by individual agents. Capital market access allows resources to be held securely and intertemporally transferred, but at a lower rate of return. In a two period model, we completely characterise symmetric consumption and extraction behaviour in four environments: un- der a strategic and a competitive equilibrium concept, and with and without market access. Strategic equilibria dominate competitive ones: while agents disagree over how to divide the resource, all would prefer it to be larger; the strategic concept allows them to anticipate returns to their conservation. As the number of agents becomes infinite, the strategic outcome converges to the competitive; as the number of agents falls to one, it converges to the planner's. Market access has a positive effect on welfare owing to its con- sumption and extraction smoothing properties and a negative effect owing to its creation of an outside option to the commons, encouraging its depletion. A sufficient condition for autarky to dominate market access for some levels of communal endowment is that the world market discount factor exceed the subjective discount factor. Multiple equilibria may arise: these result from market access, not the equilibrium concept. Key words: commons, capital markets, Washington Consensus, property rights

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 31 (2007)
Issue (Month): 2 (May)
Pages: 225-254

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Handle: RePEc:spr:joecth:v:31:y:2007:i:2:p:225-254

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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Related research

Keywords: Commons; Capital markets; Washington consensus; Property rights; C73; D91; O17; Q21;

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References

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Citations

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Cited by:
  1. Jayasri Dutta & Colin Rowat, 2007. "The Road to Extinction: Commons with Capital Markets," Discussion Papers 04-11RR, Department of Economics, University of Birmingham.
  2. Rahmi İlkılıç, 2011. "Networks of common property resources," Economic Theory, Springer, vol. 47(1), pages 105-134, May.

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