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The commons with capital markets

  • Colin Rowat

    (University of Birmingham)

  • Jayasri Dutta

    (University of Birmingham)

We explore commons problems when agents have access to capital markets. The commons has a high intrinsic rate of return but its fruits cannot be secured by individual agents. Resources transferred to the capital market earn lower returns, but are secure. In a two period model, we assess the consequences of market access for the commons' survival and welfare; we compare strategic and competitive equilibria. Market access generally speeds extinction, with negative welfare consequences. Against this, it allows intertemporal smoothing, a positive effect. In societies in which the former effect dominates, market liberalisation may be harmful. We reproduce the multiple equilibria found in other models of competitive agents; when agents are strategic, extinction dates are unique. Strategic agents generally earn their surplus by delaying the commons' extinction; in unusual cases, strategic agents behave as competitive ones even when their numbers are small.

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Paper provided by EconWPA in its series GE, Growth, Math methods with number 0412002.

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Length: 30 pages
Date of creation: 21 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpge:0412002
Note: Type of Document - pdf; pages: 30. Department of Economics, University of Birmingham working paper 05-01
Contact details of provider: Web page: http://econwpa.repec.org

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