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When is Encouraging Consumption of Common Property Second Best? Sorting, Congestion and Entry in the Commons

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  • Jonathan E. Hughes

    (University of Colorado at Boulder)

  • Daniel Kaffine

    (Division of Economics and Business, Colorado School of Mines)

Abstract

First-best pricing or assignment of property rights for rival and non-excludable goods is often infeasible. In a second-best setting where the social planner cannot limit total use, we show common-property resources can be over or under-consumed. This depends on whether the external benefits of reallocating users to less congested goods outweigh the additional costs imposed by new entrants. Applied to traffic congestion in Los Angeles, we find high-occupancy vehicle (HOV) lanes are under-consumed in the short run and over-consumed in the longer run. Surprisingly, encouraging HOV lane use increases expected congestion costs and decreases welfare on every route we study.

Suggested Citation

  • Jonathan E. Hughes & Daniel Kaffine, 2013. "When is Encouraging Consumption of Common Property Second Best? Sorting, Congestion and Entry in the Commons," Working Papers 2013-05, Colorado School of Mines, Division of Economics and Business.
  • Handle: RePEc:mns:wpaper:wp201305
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    File URL: http://econbus-papers.mines.edu/working-papers/wp201305.pdf
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    References listed on IDEAS

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