Exogenous Productivity Shocks and Capital Investment in Common-pool Resources
We model exogenous technology shocks in common-pool industries using a compound Poisson process for total factor productivity. Rapid diï¿½usion of exogenous innovations is typical in the commons, but technology is rarely modeled this way. Technology shocks lower the equilibrium resource stock while causing capital buildup based on transitory proï¿½ts with myopic expectations. The steady state changes from a stable node to a shifting focus with boom and bust cycles, even if only technology is uncertain. A ï¿½sheries application is developed, but the results apply to many settings with discontinuous changes in value and open access with costly exit.
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