Strategic Exploitation of a Common Resource under Environmental Risk

Abstract

We study the effect of environmental risk on the extraction of a common resource. Using a dynamic and non-cooperative game in which an environmental event impacts both the renewability (the future quantity) and the quality of the resource, we show that the anticipation of such an event has an ambiguous effect on present extraction and the tragedy of the commons. On the one hand, a risk of a reduction in the renewability induces the agents to extract less in the present. On the other hand, a risk of a deterioration in the quality of the resource induces the agents to extract more in the present. We then establish a negative relation between conservative behavior and the tragedy of the commons. In particular, when environmental risk induces conservation (when the risk of less renewability is more important than the risk of quality deterioration), there is a larger decrease in present harvesting under social planning than in the non-cooperative game, and the tragedy of the commons is worsened. The reason is that in a non-cooperative game agents do not internalize the risk that too much extraction creates for others, and, thus, decrease their own extraction too little. The social planner does internalize the effect of conservation on all agents, and decreases harvesting more than in the non-cooperative game, which reduces the risk for the whole group of agents. This disparity in conservation leads to a worsening of the tragedy of the commons in addition to overexposure to the risk of less renewability in the non-cooperative game.Common resource, Conservation, Dynamic games, Environmental risk, Non-cooperative games, Renewable resource exploitation, Stochastic games, Strategic interactions, Tragedy of the Commons, Uncertainty.