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Splitting an Uncertain (Natural) Capital

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  • Jérémy Laurent-Lucchetti
  • Justin Leroux
  • Bernard Sinclair-Desgagné

Abstract

Most natural commons are subject to discontinuities and threshold effects, so their gradual depletion may result in a sudden irreversible loss of the associated ecological services. Yet, it is often impossible to locate these thresholds with certainty. We analyze this context using a variant of the divide-the-dollar game, in which the amount to be split among players follows a discrete or multimodal probability distribution. “Cautions equilibria” – where agents collectively behave as if the worst-case scenario were certain – are found to coexist with “dangerous equilibria” – where overall demand for ecological services might lead to their collapse – and “dreadful equilibria” – where agents collectively request so much natural capital that a collapse of ecological services is certain, even if all agents are risk averse. Communication/cooperation among agents, however, which raises the possibility of coordinated group deviations, would eliminate dreadful equilibria and reduce the occurrence of dangerous equilibria, while cautions equilibria are robust to such deviations. A direct corollary is that dangerous equilibria are Pareto-dominated by any cautions equilibrium in which all agents claim less natural capital. These results shed light on the management of common-pool resources, international climate change negotiations, and the implementation of precautionary policies.

Suggested Citation

  • Jérémy Laurent-Lucchetti & Justin Leroux & Bernard Sinclair-Desgagné, 2011. "Splitting an Uncertain (Natural) Capital," Cahiers de recherche 1105, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1105
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    References listed on IDEAS

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    1. Sandler, Todd & Sternbenz, Frederic P., 1990. "Harvest uncertainty and the tragedy of the commons," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 155-167, March.
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    Cited by:

    1. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "Asymmetric information may protect the commons: The welfare benefits of uninformed regulators," Economics Letters, Elsevier, vol. 121(3), pages 463-467.

    More about this item

    Keywords

    Common-pool resources; ecological thresholds; divide-the-dollar game; coalition-proof Nash equilibrium;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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