Can Incomplete Information Lead to Under-exploitation in the Commons

This paper analyzes the protection of a common pool resource (CPR) through the manage- ment of information. Speci?cally, we examine an entry deterrence model between an incumbent perfectly informed about the initial stock of a CPR and an uninformed potential entrant. In our model, the appropriation of the CPR by the incumbent reduces both players?future pro?ts from exploiting the resource. In the case of complete information, we show that the incumbent operating in a high-stock common pool overexploits the CPR during the ?rst period since it does not internalize the negative external e¤ect that its ?rst-period exploitation imposes on the en- trant?s future pro?ts. This ine¢ ciency, however, is absent when the common totally regenerates across periods. Under incomplete information, we identify an additional form of ine¢ ciency. In particular, the incumbent operating in a low-stock CPR underexploits the resource in order to signal the low available stock to potential entrants, deterring entry. When the common fully regenerates, we show that such underexploitation becomes more signi?cant since the low-stock incumbent aims to protect its larger monopoly pro?ts.