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Splitting an Uncertain (Natural) Capital

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  • Jérémy Laurent-Lucchetti
  • Justin Leroux

    ()
    (IEA, HEC Montréal)

  • Bernard Sinclair-Desgagné

    ()
    (IEA, HEC Montréal)

Abstract

Most natural commons are subject to discontinuities and threshold effects, so their gradual depletion may result in a sudden irreversible loss of the associated ecological services. Yet, it is often impossible to locate these thresholds with certainty. We analyze this context using a variant of the divide-the-dollar game, in which the amount to be split among players follows a discrete or multimodal probability distribution. ‘Cautious equilibria’ – where agents collectively behave as if the worst-case scenario were certain - are found to coexist with ‘dangerous equilibria’ - where overall demand for ecological services might lead to their collapse - and ‘dreadful equilibria’ - where agents collectively request so much natural capital that a collapse of ecological services is certain, even if all agents are risk averse. Communication/cooperation among agents, however, which raises the possibility of coordinated group deviations, would eliminate dreadful equilibria and reduce the occurrence of dangerous equilibria, while cautious equilibria are robust to such deviations. A direct corollary is that dangerous equilibria are Pareto-dominated by any cautious equilibrium in which all agents claim less natural capital. These results shed light on the management of common-pool resources, international climate change negotiations, and the implementation of precautionary policies.

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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 11-01.

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Length: 28 pages
Date of creation: Jan 2011
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Handle: RePEc:iea:carech:1101

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Keywords: Common-pool resources; Ecological thresholds; Divide-the-dollar game; Coalition-proof Nash equilibrium;

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  1. Yann Bramoullé & Nicolas Treich, 2009. "Can Uncertainty Alleviate the Commons Problem?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(5), pages 1042-1067, 09.
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  12. Boucher, Vincent & Bramoullé, Yann, 2010. "Providing global public goods under uncertainty," Journal of Public Economics, Elsevier, Elsevier, vol. 94(9-10), pages 591-603, October.
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Cited by:
  1. Ana Espinola-Arredondo & Felix Munoz-Garcia, . "Asymmetric Information may Protect the Commons: The Welfare Benefits of Uniformed Regulators," Working Papers, School of Economic Sciences, Washington State University 2013-8, School of Economic Sciences, Washington State University.

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