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Dynamic Mechanism Design for a Global Commons

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  • Rodrigo Harrison
  • Roger Laguno ff

Abstract

We model dynamic mechanisms for a global commons. Countries benefit from both consumption and aggregate conservation of an open access resource. A country's relative value of consumption-to-conservation is privately observed and evolves stochastically. An optimal quota maximizes world welfare subject to being implementable by Perfect Bayesian equilibria. With complete information, the optimal quota is first best; it allocates more of the resource each period to countries with high consumption value. Under incomplete information, the optimal quota is fully compressed - initially identical countries always receive the same quota even as environmental costs and resource needs differ later on.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000831.

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Date of creation: 10 Oct 2013
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Handle: RePEc:cla:levarc:786969000000000831

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  1. Manuel Amador & Ivan Werning & George-Marios Angeletos, 2003. "Commitment Vs. Flexibility," NBER Working Papers 10151, National Bureau of Economic Research, Inc.
  2. Sandeep Baliga & Eric Maskin, 2003. "Mechanism Design for the Environment," Levine's Working Paper Archive 506439000000000341, David K. Levine.
  3. William D. Nordhaus, 2006. "After Kyoto: Alternative Mechanisms to Control Global Warming," American Economic Review, American Economic Association, vol. 96(2), pages 31-34, May.
  4. Marco Battaglini & Bård Harstad, 2012. "Participation and Duration of Environmental Agreements," NBER Working Papers 18585, National Bureau of Economic Research, Inc.
  5. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
  6. Jonathan Cave, 1987. "Long-Term Competition in a Dynamic Game: The Cold Fish War," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 596-610, Winter.
  7. Sébastien ROUILLON (GREThA UMR CNRS 5113), 2010. "Optimal decentralized management of a natural resource," Cahiers du GREThA 2010-15, Groupe de Recherche en Economie Théorique et Appliquée.
  8. Dutta, Prajit K. & Radner, Roy, 2009. "A strategic analysis of global warming: Theory and some numbers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 187-209, August.
  9. Roberts, Kevin, 1984. "The Theoretical Limits of Redistribution," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 177-95, April.
  10. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
  11. David Levhari & Leonard J. Mirman, 1980. "The Great Fish War: An Example Using a Dynamic Cournot-Nash Solution," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 322-334, Spring.
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