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Strategic Exploitation of a Common Resource under Environmental Risk

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Abstract

We study the effect of environmental risk on the extraction of a common resource. Using a dynamic and non-cooperative game in which an environmental event impacts both the renewability (the future quantity) and the quality of the resource, we show that the anticipation of such an event has an ambiguous effect on present extraction and the tragedy of the commons. On the one hand, a risk of a reduction in the renewability induces the agents to extract less in the present. On the other hand, a risk of a deterioration in the quality of the resource induces the agents to extract more in the present. We then establish a negative relation between conservative behavior and the tragedy of the commons. In particular, when environmental risk induces conservation (when the risk of less renewability is more important than the risk of quality deterioration), there is a larger decrease in present harvesting under social planning than in the non-cooperative game, and the tragedy of the commons is worsened. The reason is that in a non-cooperative game agents do not internalize the risk that too much extraction creates for others, and, thus, decrease their own extraction too little. The social planner does internalize the effect of conservation on all agents, and decreases harvesting more than in the non-cooperative game, which reduces the risk for the whole group of agents. This disparity in conservation leads to a worsening of the tragedy of the commons in addition to overexposure to the risk of less renewability in the non-cooperative game.

Suggested Citation

  • Eric Fesselmeyer & Marc Santugini, 2009. "Strategic Exploitation of a Common Resource under Environmental Risk," Cahiers de recherche 09-08, HEC Montréal, Institut d'économie appliquée, revised Feb 2012.
  • Handle: RePEc:iea:carech:0908
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    Cited by:

    1. Christopher Costello & Bruno Nkuiya & Nicolas Querou, 2017. "Extracting spatial resources under possible regime shift," Working Papers 17-07, LAMETA, Universitiy of Montpellier.
    2. Adam N. Walker & Hans-Peter Weikard & Andries Richter, 2015. "The Rise and Fall of the Great Fish Pact under Endogenous Risk of Stock Collapse," Working Papers 2015.60, Fondazione Eni Enrico Mattei.
    3. Agbo, Maxime, 2014. "Strategic exploitation with learning and heterogeneous beliefs," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 126-140.
    4. Miller, Steve & Nkuiya, Bruno, 2016. "Coalition formation in fisheries with potential regime shift," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 189-207.
    5. 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.
    6. Diekert, Florian K., 2017. "Threatening thresholds? The effect of disastrous regime shifts on the non-cooperative use of environmental goods and services," Journal of Public Economics, Elsevier, vol. 147(C), pages 30-49.
    7. Florian K. Diekert & Emmi Nieminen, 2017. "International Fisheries Agreements with a Shifting Stock," Dynamic Games and Applications, Springer, vol. 7(2), pages 185-211, June.

    More about this item

    Keywords

    Common resource; Conservation; Dynamic games; Environmental risk; Non-cooperative games; Renewable resource exploitation; Stochastic games; Strategic interactions; Tragedy of the Commons; Uncertainty.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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