Information Structure and the Tragedy of the Commons in Resource Extraction

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.Dynamic resource games; Open-loop; Closed-loop and trigger strategies; Pareto optimality, Regulation

Cooperation in the Commons with Unobservable Actions

We model a dynamic common property resource game with unobservable actions and non-linear stock dependent costs. We propose a strategy profile that generates a worst perfect equilibrium in the punishment phase, thereby supporting cooperation under the widest set of conditions. We show under what set of parameter values for the discount rate, resource growth rate, harvest price, and the number of resource users, this strategy supports cooperation in the commons as a subgame perfect equilibrium. The strategy profile that we propose, which involves harsh punishment after a defection followed by forgiveness, is consistent with human behavior observed in experiments and common property resource case studies.Common property resource, cooperation, dynamic game, unobservable actions

Information Structure and the Tragedy of the Commons in Resource Extraction

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 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

Strategic Exploitation of a Common-Property Resource under Uncertainty

We construct a game of noncooperative common-resource exploitation which delivers analytical solutions for its symmetric Markov-perfect Nash equilibrium. We examine how introducing uncertainty to the natural law of resource reproduction affects strategic exploitation. We show that the commons problem is always present in our example and we identify cases in which increases in risk amplify or mitigate the commons problem. For a specific class of games which imply Markov-perfect strategies that are linear in the resource stock (our example belongs to this class), we provide general results on how payoff-function features affect the responsiveness of exploitation strategies to changes in riskiness. These broader characterizations of games which imply linear strategies (appearing in an Online Appendix) can be useful in future work, given the technical difficulties that may arise by the possible nonlinearity of Markov-perfect strategies in more general settings

Tacit collusion in a dynamic duopoly with indivisible production and cumulative capacity constraints

This paper studies a dynamic, quantity setting duopoly game characterized as follows: Each firm produces an indivisible output over a potentially infinite horizon, facing the constraint that its cumulative production cannot exceed an initially given bound. The environment is otherwise stationary; the remaining productive capacities of the firms at any moment are common knowledge; the firms choose production plans contingent on these capacities which are mutual best responses in every contingency. The resulting Markov Perfect Equilibria are analyzed using a two-dimensional backward induction, and compared with the equilibria which emerge when precommitment to time paths of output is possible. It is shown that the ability to precommit can be disadvantageous; that collusion in Markov Equilibrium is facilitated by the symmetrical placement of the firms; and that having greater capacity confers basic strategic advantage on a firm by enabling it to credibly threaten future production. The model solves an open problem in the theory of exhaustible resource economics by imposing subgame perfection in a resource oligopoly with independent stocks. It also formalizes the intuition that, when indivisibilities are important, tacit coordination of plans so as to avoid destructive competition is facilitated by establishing a convention of "taking turns" - that is, a self-enforcing norm of mutual, alternate forbearance.Supported by the Bradley Foundation, the Olin Foundation and the Center for Energy Policy Research, MIT

Public Goods: A Survey of Experimental Research

Environments with public goods are a wonderful playground for those interested in delicate experimental problems, serious theoretical challenges, and difficult mechanism design issues. A review is made of various public goods experiments. It is found that the public goods environment is a very sensitive one with much that can affect outcomes but are difficult to control. The many factors interact with each other in unknown ways. Nothing is known for sure. Environments with public goods present a serious challenge even to skilled experimentalists and many opportunities for imaginative work

Public Goods: A Survey of Experimental Research

Environments with public goods are a wonderful playground for those interested in delicate experimental problems, serious theoretical challenges, and difficult mechanism design issues. A review is made of various public goods experiments. It is found that the public goods environment is a very sensitive one with much that can affect outcomes but are difficult to control. The many factors interact with each other in unknown ways. Nothing is known for sure. Environments with public goods present a serious challenge even to skilled experimentalists and many opportunities for imaginative work

Information Structure and the Tragedy of the Commons in Resource Extraction

dynamic resource games, open and closed loop strategies, trigger strategies, Pareto optimality, regulation, Q20, C73, H41, Q22,