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The road to extinction: commons with capital markets

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  • Colin Rowat
  • Jayasri Dutta

Abstract

Competitive agents extract in continuous time from a commons. Capital market access allows them to both save and borrow against their extraction stream. When the commons asset grows more quickly than the privately stored one, multiple equilibria are found for intermediate commons endowments. One of these has the extinction date and welfare decrease in the endowment, a resource curse. When the commons asset grows less quickly than the privately stored one, there is a unique extinction date for each endowment level. In the limit, as marginal extraction costs become constant, `jump extinctions' occur. In cases with multiple equilibria: welfare is increased for low initial stock levels when agents do not have access to capital markets, but decreased otherwise; and an extraction tax reduces welfare in the `cursed' equilibrium, increases it in the other finite extinction equilibrium and expands the set of commons stocks that are never extinguished

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 145.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:145

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Keywords: commons; capital markets; extinction; resource curse; storage; multiple equilibrium; rational expectations equilibrium;

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Cited by:
  1. 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.
  2. Ngo Long & Gerhard Sorger, 2006. "Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity," Economic Theory, Springer, vol. 28(3), pages 513-529, 08.
  3. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "Relative Consumption and Resource Extraction," CIRANO Working Papers 2008s-27, CIRANO.
  4. Colin Rowat and Jayasri Dutta, 2005. "The Commons with Capital Markets," Discussion Papers 05-19, Department of Economics, University of Birmingham.
  5. Rahmi İlkılıç, 2011. "Networks of common property resources," Economic Theory, Springer, vol. 47(1), pages 105-134, May.
  6. 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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