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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, extinction is hastened and welfare decreases in the endowment, a resource curse. An extraction tax reduces welfare in this 'cursed' equilibrium, increases it in the other equilibrium in which the commons is eventually depleted, and expands the set of commons stocks that are never depleted. Capital market access harms societies with low commons endowments. In the limit, as marginal extraction costs become constant, `jump extinctions' occur. Finally, when the commons grows less quickly than the interest rate, there is a unique extinction date for each endowment level.

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Bibliographic Info

Paper provided by EconWPA in its series GE, Growth, Math methods with number 0412001.

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Length: 28 pages
Date of creation: 09 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpge:0412001

Note: Type of Document - pdf; pages: 28 University of Birmingham Department of Economics Working Paper number 04-12 24 May, 2004
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Web page: http://128.118.178.162

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

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References

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  1. Houba, Harold & Sneek, Koos & Vardy, Felix, 2000. "Can negotiations prevent fish wars?," Journal of Economic Dynamics and Control, Elsevier, vol. 24(8), pages 1265-1280, July.
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Citations

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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 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.
  3. Colin Rowat and Jayasri Dutta, 2004. "The commons with capital markets," Discussion Papers 05-01, Department of Economics, University of Birmingham.
  4. Rahmi İlkılıç, 2011. "Networks of common property resources," Economic Theory, Springer, vol. 47(1), pages 105-134, May.
  5. 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.
  6. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "Relative Consumption and Resource Extraction," CIRANO Working Papers 2008s-27, CIRANO.

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