IDEAS home Printed from https://ideas.repec.org/p/hhs/osloec/2015_012.html
   My bibliography  Save this paper

Threatening Thresholds? The effect of disastrous regime shifts on the cooperative and non-cooperative use of environmental goods and services

Author

Listed:
  • Diekert, Florian K.

    () (Centre for Ecological and Evolutionary Synthesis, University of Oslo,)

Abstract

This paper presents an analytically tractable dynamic game in which players jointly use a resource. The resource replenishes fully but collapses should total use exceed a threshold in any one period. The initial level of use is known to be safe. If it is at all optimal to increase resource use, the consumption frontier is pushed once. Moreover, it is shown that the degree of experimentation is decreasing in the safe value of resource use. Non-cooperative agents can take advantage of this feature and coordinate on a “cautious" equilibrium. If the status quo is sufficiently valuable, the threat of the regime shift induces the first-best. If the status-quo is not sufficiently valuable, experimentation will be inefficiently risky. But given that the threshold has not been crossed, the updated consumption frontier will, ex post, be socially optimal. However, there is also a pareto-inferior, “aggressive" equilibrium in which the resource is depleted immediately. Under some conditions, immediate depletion is a self-fulfilling prophecy, although the social optimum is to sustain the resource indefinitely. Closed-form solutions are provided for a specific example and it is shown that the pareto-superior, “cautious" equilibrium is risk-dominant up to a high probability that the opponents play an aggressive strategy. The result that the threat of a disastrous regime shift allows the agents to coordinate on a pareto-superior equilibrium, because it only pays to search for the location of the threshold once, is robust to extensions that account for more general resource dynamics

Suggested Citation

  • Diekert, Florian K., 2015. "Threatening Thresholds? The effect of disastrous regime shifts on the cooperative and non-cooperative use of environmental goods and services," Memorandum 12/2015, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2015_012
    as

    Download full text from publisher

    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2015/memo-12-2015.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Reyer Gerlagh & Matti Liski, 2014. "Carbon Prices for the Next Hundred Years," CESifo Working Paper Series 4671, CESifo Group Munich.
    2. Anne-Sophie Crépin & Therese Lindahl, 2009. "Grazing Games: Sharing Common Property Resources with Complex Dynamics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 29-46, September.
    3. Costello, Christopher & Karp, Larry, 2004. "Dynamic taxes and quotas with learning," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1661-1680, June.
    4. Olivier Bochet & Jeremy Laurent-Lucchetti & Justin Leroux & Bernard Sinclair-Desgagné, 2013. "Collective Dangerous Behavior: Theory and Evidence on Risk-Taking," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13101, Institut d'Economie et Econométrie, Université de Genève.
    5. Aflaki, Sam, 2013. "The effect of environmental uncertainty on the tragedy of the commons," Games and Economic Behavior, Elsevier, vol. 82(C), pages 240-253.
    6. Agbo, Maxime, 2014. "Strategic exploitation with learning and heterogeneous beliefs," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 126-140.
    7. Fesselmeyer, Eric & Santugini, Marc, 2013. "Strategic exploitation of a common resource under environmental risk," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 125-136.
    8. Barrett, Scott, 2013. "Climate treaties and approaching catastrophes," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 235-250.
    9. Cropper, M. L., 1976. "Regulating activities with catastrophic environmental effects," Journal of Environmental Economics and Management, Elsevier, vol. 3(1), pages 1-15, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lemoine, Derek & Traeger, Christian P., 2016. "Ambiguous tipping points," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PB), pages 5-18.

    More about this item

    Keywords

    Dynamic Games; Thresholds and Natural Disasters; Learning;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:osloec:2015_012. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mari Strønstad Øverås). General contact details of provider: http://edirc.repec.org/data/souiono.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.