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A dynamic common-property resource problem with potential regime shifts

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  • Hiro Sakamoto

Abstract

This paper provides a general framework with which a dynamic problem with potential regime shifts can be analyzed in a strategic environment as well as from social planner’s perspective. A typical situation described by such a game is the joint exploitation of a common-property resource such as lakes, forests, marine fish populations, and at a larger scale the global climate system. By applying the framework to a simple dynamic common-property resource problem, we show that when the risk is endogenous, potential of regime shifts can facilitate precautionary management of common-property resources even in a strategic environment. It is also shown that there exists a resource-depletion trap in which a regime shift, once it happens, triggers a reversal of resource accumulation dynamics, possibly leading to a collapse of resource base.

Suggested Citation

  • Hiro Sakamoto, 2013. "A dynamic common-property resource problem with potential regime shifts," Discussion papers e-12-012, Graduate School of Economics Project Center, Kyoto University.
  • Handle: RePEc:kue:dpaper:e-12-012
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    File URL: http://www.econ.kyoto-u.ac.jp/projectcenter/Paper/e-12-012.pdf
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    References listed on IDEAS

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    1. Polasky, Stephen & de Zeeuw, Aart & Wagener, Florian, 2011. "Optimal management with potential regime shifts," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 229-240, September.
    2. Antoniadou, Elena & Koulovatianos, Christos & Mirman, Leonard J., 2013. "Strategic exploitation of a common-property resource under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 28-39.
    3. Benhabib, Jess & Radner, Roy, 1992. "The Joint Exploitation of a Productive Asset: A Game-Theoretic Approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 155-190, April.
    4. Dockner, Engelbert J. & Sorger, Gerhard, 1996. "Existence and Properties of Equilibria for a Dynamic Game on Productive Assets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 209-227, October.
    5. Guo, Xin & Miao, Jianjun & Morellec, Erwan, 2005. "Irreversible investment with regime shifts," Journal of Economic Theory, Elsevier, vol. 122(1), pages 37-59, May.
    6. Tsur, Yacov & Zemel, Amos, 1996. "Accounting for global warming risks: Resource management under event uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1289-1305.
    7. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    8. Gerhard Sorger, 2005. "A dynamic common property resource problem with amenity value and extraction costs," International Journal of Economic Theory, The International Society for Economic Theory, vol. 1(1), pages 3-19.
    9. Clarke, Harry R. & Reed, William J., 1994. "Consumption/pollution tradeoffs in an environment vulnerable to pollution-related catastrophic collapse," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 991-1010, September.
    10. Cropper, M. L., 1976. "Regulating activities with catastrophic environmental effects," Journal of Environmental Economics and Management, Elsevier, vol. 3(1), pages 1-15, June.
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    More about this item

    Keywords

    Regime shift; Markov-perfect Nash equilibrium; common-property resource; tragedy of the commons;

    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
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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