The Road to Extinction: Commons With Capital Markets

University of Birmingham Economics Working Paper No. 04-11RR

32 Pages Posted: 15 Sep 2004

See all articles by Jayasri Dutta

Jayasri Dutta

University of Birmingham - Department of Economics

Colin Rowat

University of Birmingham - Department of Economics

Date Written: January 19, 2007

Abstract

We study extinction in a commons problem in which agents have access to capital markets. When the commons grows more quickly than the interest rate, multiple equilibria are found for intermediate commons endowments. In one of these, welfare decreases as the resource becomes more abundant, a `resource curse'. As marginal extraction costs become constant, market access instantly depletes the commons. Without markets - the classic environment - equilibria are unique; extinction dates and welfare increase with the endowment. When the endowment is either very abundant or very scarce, market access improves welfare. As marginal costs of extraction from the commons become constant, market access can reduce welfare if the subjective discount rate exceeds the interest rate.

Keywords: commons, capital markets, perfect foresight, extinction, resource curse, storage

JEL Classification: C73, D91, O17, Q21

Suggested Citation

Dutta, Jayasri and Rowat, Colin, The Road to Extinction: Commons With Capital Markets (January 19, 2007). University of Birmingham Economics Working Paper No. 04-11RR. Available at SSRN: https://ssrn.com/abstract=589842 or http://dx.doi.org/10.2139/ssrn.589842

Jayasri Dutta

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom
+44 0121 4 146640 (Phone)

Colin Rowat (Contact Author)

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom
+44 121 414 3754 (Phone)
+44 121 414 7377 (Fax)

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