The Commons with Capital Markets

University of Birmingham Economics Working Paper No. 05-19

38 Pages Posted: 3 Jan 2005

See all articles by Colin Rowat

Colin Rowat

University of Birmingham - Department of Economics

Jayasri Dutta

University of Birmingham - Department of Economics

Date Written: December 13, 2005

Abstract

We explore a dynamic commons problem and assess the welfare consequences of access to capital markets. The commons has a high intrinsic rate of return but its fruits cannot be secured by individual agents. Capital market access allows resources to be held securely and intertemporally transferred, but at a lower rate of return. In a two period model, we completely characterise symmetric consumption and extraction behaviour in four environments: under a strategic and a competitive equilibrium concept, and with and without market access. Strategic equilibria dominate competitive ones: while agents disagree over how to divide the resource, all would prefer it to be larger; the strategic concept allows them to anticipate returns to their conservation. As the number of agents becomes infinite, the strategic outcome converges to the competitive; as the number of agents falls to one, it converges to the planner's. Market access has a positive effect on welfare owing to its consumption and extraction smoothing properties and a negative effect owing to its creation of an outside option to the commons, encouraging its depletion. A sufficient condition for autarky to dominate market access for some levels of communal endowment is that the world market discount factor exceed the subjective discount factor. Multiple equilibria may arise: these result from market access, not the equilibrium concept.

Keywords: Commons, capital markets, Washington Consensus, property rights

JEL Classification: C73, D91, O17, Q21

Suggested Citation

Rowat, Colin and Dutta, Jayasri, The Commons with Capital Markets (December 13, 2005). University of Birmingham Economics Working Paper No. 05-19. Available at SSRN: https://ssrn.com/abstract=638601 or http://dx.doi.org/10.2139/ssrn.638601

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)

Jayasri Dutta

University of Birmingham - Department of Economics ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
74
rank
313,948
Abstract Views
1,247
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information