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The Commons with Capital Markets

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  • Colin Rowat and 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

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 05-19.

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Length: 36 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:bir:birmec:05-19

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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; Washington Consensus; property rights;

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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. 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.
  3. Rahmi İlkılıç, 2011. "Networks of common property resources," Economic Theory, Springer, vol. 47(1), pages 105-134, May.

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