The Road to Extinction: Commons with Capital Markets
We study extinction in a commons problem in which agents have access to capital markets. When the commons grows more quickly than the interest rate, multiple equilibria are found for intermediate commons endowments. In one of these, extinction is hastened and welfare decreases in the endowment, a resource curse. An extraction tax reduces welfare in this 'cursed' equilibrium, increases it in the other equilibrium in which the commons is eventually depleted, and expands the set of commons stocks that are never depleted. Capital market access harms societies with low commons endowments. In the limit, as marginal extraction costs become constant, `jump extinctions' occur. Finally, when the commons grows less quickly than the interest rate, there is a unique extinction date for each endowment level.
|Date of creation:||09 Dec 2004|
|Date of revision:|
|Note:||Type of Document - pdf; pages: 28 University of Birmingham Department of Economics Working Paper number 04-12 24 May, 2004|
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