Dynamic Mechanism Design for a Global Commons

48 Pages Posted: 1 Oct 2013 Last revised: 23 Aug 2014

See all articles by Rodrigo Harrison

Rodrigo Harrison

Pontifical Catholic University of Chile - Institute of Economics

Roger Lagunoff

Georgetown University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 9, 2014

Abstract

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

Suggested Citation

Harrison, Rodrigo and Lagunoff, Roger, Dynamic Mechanism Design for a Global Commons (May 9, 2014). Available at SSRN: https://ssrn.com/abstract=2333901 or http://dx.doi.org/10.2139/ssrn.2333901

Rodrigo Harrison

Pontifical Catholic University of Chile - Institute of Economics ( email )

Casilla 76
Correo 17
Santiago
Chile

Roger Lagunoff (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-1510 (Phone)
202-687-6102 (Fax)

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