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The Road to Extinction: Commons with Capital Markets

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  • Jayasri Dutta

    (University of Birmingham)

  • Colin Rowat

    (University of Birmingham)

Abstract

We study extinction in a commons problem in which agents have access to capital markets. When the commons grows more quickly than the interest rate, multiple equilibria are found for intermediate commons endowments. In one of these, welfare decreases as the resource becomes more abundant, a `re- source curse'. As marginal extraction costs become constant, market access instantly depletes the commons. Without markets - the classic environment - equilibria are unique; extinction dates and welfare increase with the endow- ment. When the endowment is either very abundant or very scarce, market access improves welfare. As marginal costs of extraction from the commons become constant, market access can reduce welfare if the subjective discount rate exceeds the interest rate.

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Bibliographic Info

Paper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0024.

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Date of creation: Jan 2007
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Handle: RePEc:wef:wpaper:0024

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Keywords: commons; capital markets; perfect foresight; extinction; resource curse; storage;

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References

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Citations

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Cited by:
  1. Colin Rowat and Jayasri Dutta, 2004. "The commons with capital markets," Discussion Papers 05-01, Department of Economics, University of Birmingham.
  2. Van Long, Ngo & McWhinnie, Stephanie F., 2012. "The tragedy of the commons in a fishery when relative performance matters," Ecological Economics, Elsevier, vol. 81(C), pages 140-154.
  3. Ngo Van Long & Gerhard Sorger, 2004. "Insecure Property Rights and Growth: The Roles of Appropriation Costs, Wealth Effects, and Heterogeneity," CESifo Working Paper Series 1253, CESifo Group Munich.
  4. Rahmi İlkılıç, 2011. "Networks of common property resources," Economic Theory, Springer, vol. 47(1), pages 105-134, May.
  5. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "Relative Consumption and Resource Extraction," CIRANO Working Papers 2008s-27, CIRANO.
  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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