Information Structure and the Tragedy of the Commons in Resource Extraction |
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Authors: | Rabah Amir Niels Nannerup |
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Institution: | (1) CORE, University of Louvain, 34 Voie du Roman Pays, 1348 Louvain-la-Neuve, Belgium;(2) Department of Economics, University of Southern Denmark, 5230 Odense M, Denmark |
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Abstract: | Synopsis This paper considers the well-known Levhari-Mirman discrete-time model of resource extraction, and investigates the effects of the information structure of the dynamic game – open-loop, Markovian or history-dependent – on the equilibrium consumption path and the overall utility of the agents. Due to the special structure of the model, the open-loop regime yields a Pareto-optimal outcome. The Markovian regime leads to the most pronounced version of the tragedy of the commons. History-dependent behavior yields an outcome set that is intermediate between the other two cases, and that may include the Pareto-optimal outcome in some cases. The level of efficiency of equilibrium behaviour is thus U-shaped as a function of the level of information the agents’ extraction strategies are based on. The analysis suggests that in environments characterized by a dynamic (and no market) externality, forcing agents to commit to open-loop behavior would constitute welfare-improving regulation. |
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Keywords: | dynamic resource games open and closed loop strategies trigger strategies Pareto optimality regulation |
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