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A dynamic common-property resource problem with potential regime shifts

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  • Hiro Sakamoto

Abstract

This paper provides a general framework with which a dynamic problem with potential regime shifts can be analyzed in a strategic environment as well as from social planner’s perspective. A typical situation described by such a game is the joint exploitation of a common-property resource such as lakes, forests, marine fish populations, and at a larger scale the global climate system. By applying the framework to a simple dynamic common-property resource problem, we show that when the risk is endogenous, potential of regime shifts can facilitate precautionary management of common-property resources even in a strategic environment. It is also shown that there exists a resource-depletion trap in which a regime shift, once it happens, triggers a reversal of resource accumulation dynamics, possibly leading to a collapse of resource base.

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File URL: http://www.econ.kyoto-u.ac.jp/projectcenter/Paper/e-12-012.pdf
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Bibliographic Info

Paper provided by Graduate School of Economics Project Center, Kyoto University in its series Discussion papers with number e-12-012.

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Length: 26 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:kue:dpaper:e-12-012

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Related research

Keywords: Regime shift; Markov-perfect Nash equilibrium; common-property resource; tragedy of the commons;

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References

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  1. Cropper, M. L., 1976. "Regulating activities with catastrophic environmental effects," Journal of Environmental Economics and Management, Elsevier, vol. 3(1), pages 1-15, June.
  2. Stephen Polasky & Aart de Zeeuw & Florian Wagener, 2010. "Optimal Management with Potential Regime Shifts," CESifo Working Paper Series 3237, CESifo Group Munich.
  3. Christos Koulovatianos & Elena Antoniadou & Leonard J.Mirman, 2007. "Strategic Exploitation of a Common-Property Resource under Uncertainty," Vienna Economics Papers, University of Vienna, Department of Economics 0703, University of Vienna, Department of Economics.
  4. Dockner, Engelbert J. & Sorger, Gerhard, 1996. "Existence and Properties of Equilibria for a Dynamic Game on Productive Assets," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 209-227, October.
  5. Gerhard Sorger, 2005. "A dynamic common property resource problem with amenity value and extraction costs," International Journal of Economic Theory, The International Society for Economic Theory, The International Society for Economic Theory, vol. 1(1), pages 3-19.
  6. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  7. Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(5), pages 991-1010, September.
  8. Xin Guo & Jianjun Miao & Erwan Morellec, 2002. "Irreversible Investment with Regime Shifts," FAME Research Paper Series, International Center for Financial Asset Management and Engineering rp99, International Center for Financial Asset Management and Engineering.
  9. Benhabib, Jess & Radner, Roy, 1992. "The Joint Exploitation of a Productive Asset: A Game-Theoretic Approach," Economic Theory, Springer, Springer, vol. 2(2), pages 155-90, April.
  10. Tsur, Yacov & Zemel, Amos, 1996. "Accounting for global warming risks: Resource management under event uncertainty," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 20(6-7), pages 1289-1305.
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