Information Structure and the Tragedy of the Commons in Resource Extraction
CORE Discussion Paper No. 2004/40
24 Pages Posted: 3 Mar 2007
Date Written: June 2004
This paper considers the well-known Levhari-Mirman model of resource extraction, and investigates the effects of the information structure of the dynamic game - open-loop, Markovian or history-dependent - on the equilibrium consumption path and the overall utility of the agents. The open-loop regime yields a Pareto-optimal outcome. The Markovian regime leads to the most pronounced version of the tragedy of the commons. History-dependent behavior yields an outcome set that is intermediate between the other two cases. The level of efficiency of equilibrium behaviour is thus U-shaped as a function of the level of information extraction strategies are based on. The analysis suggests that in environments characterized by a dynamic (and no market) externality, forcing agents to commit to open-loop behavior would constitute welfare-improving regulation.
Keywords: dynamic resource games, open-loop, closed-loop and trigger strategies, Pareto optimality, regulation
JEL Classification: Q20, C73
Suggested Citation: Suggested Citation