A Ricardian Model of the Tragedy of the Commons

Abstract

This paper revisits the tragedy of the commons when agents have different capabilities in both production and encroachment activities, and can allocate their time between them. Under fairly general assumptions on production and encroachment technologies, an individual's expected income is convex with respect to his actions so that individuals specialize. Consequently, in equilibrium, the economy is divided into at most two homogeneous groups: encroachers and producers. The partition obeys a relative advantage criterion. Several equilibria may exist. The "tragedy of the commons" equilibrium without production always does; the Pareto optimal allocation of activities may not be an equilibrium. We show that minute changes in property right enforcement may lead to drastic improvements for society. We argue that, in convex games such as this paper's role choice game, bounded rationality is a natural assumption, and the concept of local Nash equilibrium is the natural analytical tool to handle it.

Keywords: Property rights, institutions, commons, convexity, general equilibrium, bounded rationality

JEL Classification: D23, D62, D7, K00