Dynamic Mechanism Design for a Global Commons

32 Pages Posted: 28 Aug 2017

See all articles by Rodrigo Harrison

Rodrigo Harrison

Pontifical Catholic University of Chile - Institute of Economics

Roger Lagunoff

Georgetown University - Department of Economics

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Date Written: August 2017

Abstract

We model dynamic mechanisms for a global commons. Countries value both consumption and 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: Identical countries receive the same quota even as environmental costs and resource needs differ. This is true even when private information is negligible.

Suggested Citation

Harrison, Rodrigo and Lagunoff, Roger, Dynamic Mechanism Design for a Global Commons (August 2017). International Economic Review, Vol. 58, Issue 3, pp. 751-782, 2017, Available at SSRN: https://ssrn.com/abstract=3026818 or http://dx.doi.org/10.1111/iere.12234

Rodrigo Harrison (Contact Author)

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

Casilla 76
Correo 17
Santiago
Chile

Roger Lagunoff

Georgetown University - Department of Economics ( email )

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

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