Dynamic Mechanism Design for a Global Commons
48 Pages Posted: 1 Oct 2013 Last revised: 23 Aug 2014
Date Written: May 9, 2014
We model dynamic mechanisms for a global commons. Countries benefit from both consumption and aggregate conservation of an open access resource. A country's relative value of consumption-to-conservation is privately observed and evolves stochastically. An optimal quota maximizes world welfare subject to being implementable by Perfect Bayesian equilibria. With complete information, the optimal quota is first best; it allocates more of the resource each period to countries with high consumption value. Under incomplete information, the optimal quota is fully compressed --- initially identical countries always receive the same quota even as environmental costs and resource needs differ later on. We show that this is true even when private information is negligible.
Keywords: Dynamic mechanism design, global commons, climate change, optimal quota, full compression, fish wars, Perfect Bayesian equilibria, international agency
JEL Classification: C73, D82, F53, Q54, Q58
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