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The Commons with Capital Markets

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  • Colin Rowat

    ()

  • Jayasri Dutta

    ()

Abstract

We explore commons problems when agents have access to capital markets. The commons has a high intrinsic rate of return but its fruits cannot be secured by individual agents. Resources transferred to the capital market earn lower returns, but are secure. In a two period model, we assess the consequences of market access for the commons' survival and welfare; we compare strategic and competitive equilibria. Market access generally speeds extinction, with negative welfare consequences. Against this, it allows intertemporal smoothing, a positive effect. In societies in which the former effect dominates, market liberalisation may be harmful. We reproduce the multiple equilibria found in other models of competitive agents; when agents are strategic, extinction dates are unique. Strategic agents generally earn their surplus by delaying the commons' extinction; in unusual cases, strategic agents behave as competitive ones even when their numbers are small.

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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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Related research

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

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References

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  1. Homans, Frances R. & Wilen, James E., 2005. "Markets and rent dissipation in regulated open access fisheries," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 381-404, March.
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  6. Jayasri Dutta & Colin Rowat, 2004. "The Road to Extinction: Commons with Capital Markets," GE, Growth, Math methods 0412001, EconWPA.
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  16. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62, pages 124.
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Citations

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Cited by:
  1. Jayasri Dutta & Colin Rowat, 2006. "The Road to Extinction: commons with capital markets," Discussion Papers 04-11r, 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.
  3. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "Relative consumption and renewable resource extraction under alternative property-rights regimes," Resource and Energy Economics, Elsevier, vol. 33(4), pages 1028-1053.

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