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The Road to Extinction: Commons with Capital Markets

  • Jayasri Dutta
  • Colin Rowat

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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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/070103rd-extinct.pdf
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Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 04-11RR.

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Length: 32 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:bir:birmec:04-11rr
Contact details of provider: Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk

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