When is the Standard Analysis of Common Property Extraction Under Free Access Correct? A Game-Theoretic Justification for Non-Game-Theoretic Analyses
Posted: 25 Aug 1999
Analyses of common property extraction under free access follow two distinct paths, traditional and game-theoretic, giving rise to two standard methodologies. One methodology avoids game-theoretic analysis by assuming that aggregate extraction in each period induces full rent dissipation. The second methodology solves for the Markov-perfect equilibrium of an n-player extraction game investigating aggregate behavior over time as n approaches infinity. We show by example that these coexisting "standard" methodologies can yield conflicting predictions. We then provide conditions, relatively easy to satisfy, sufficient for the two approaches to yield the same predictions.
JEL Classification: C79
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