Information Structure and the Tragedy of the Commons in Resource Extraction

CORE Discussion Paper No. 2004/40

24 Pages Posted: 3 Mar 2007

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Niels Nannerup

University of Southern Denmark

Date Written: June 2004

Abstract

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

Amir, Rabah and Nannerup, Niels, Information Structure and the Tragedy of the Commons in Resource Extraction (June 2004). Available at SSRN: https://ssrn.com/abstract=967609 or http://dx.doi.org/10.2139/ssrn.967609

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Niels Nannerup

University of Southern Denmark ( email )

Department of Business and Economics
Campusvej 55
DK-5230 Odense M
Denmark
+45 65 50 33 44 (Phone)
+45 66 15 87 90 (Fax)

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