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The Road to Extinction: Commons with Capital Markets

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  • Jayasri Dutta
  • Colin Rowat

Abstract

We study extinction in a commons problem in which agents have access to capital markets. When the commons grows more quickly than the interest rate, multiple equilibria are found for intermediate commons endowments. In one of these, welfare decreases as the resource becomes more abundant, a `re- source curse'. As marginal extraction costs become constant, market access instantly depletes the commons. Without markets - the classic environment - equilibria are unique; extinction dates and welfare increase with the endow- ment. When the endowment is either very abundant or very scarce, market access improves welfare. As marginal costs of extraction from the commons become constant, market access can reduce welfare if the subjective discount rate exceeds the interest rate.

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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/070103rd-extinct.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 04-11RR.

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Length: 32 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:bir:birmec:04-11rr

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Keywords: commons; capital markets; perfect foresight; extinction; resource curse; storage;

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References

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Citations

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Cited by:
  1. Rahmi İlkılıç, 2011. "Networks of common property resources," Economic Theory, Springer, vol. 47(1), pages 105-134, May.
  2. Ngo Van Long & Stephanie F. McWhinnie, 2010. "The Tragedy of the Commons in a Fishery when Relative Performance Matters," School of Economics Working Papers 2010-07, University of Adelaide, School of Economics.
  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.
  4. Ngo Van Long & Gerhard Sorger, 2004. "Insecure Property Rights and Growth: The Roles of Appropriation Costs, Wealth Effects, and Heterogeneity," CESifo Working Paper Series 1253, CESifo Group Munich.
  5. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "Relative Consumption and Resource Extraction," CIRANO Working Papers 2008s-27, CIRANO.
  6. Colin Rowat and Jayasri Dutta, 2005. "The Commons with Capital Markets," Discussion Papers 05-19, Department of Economics, University of Birmingham.

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