Can incomplete information lead to under-exploitation in the commons?

This paper analyzes the protection of a common pool resource (CPR) through the management of information. Specifically, we examine an entry deterrence model between an incumbent perfectly informed about the initial stock of a CPR and an uninformed potential entrant. In our model, the appropriation of the CPR by the incumbent reduces both players' future profits from exploiting the resource. In the case of complete information, we show that the incumbent operating in a high-stock common pool overexploits the CPR during the first period since it does not internalize the negative external effect that its first-period exploitation imposes on the entrant's future profits. This inefficiency, however, is absent when the commons totally regenerate across periods. Under incomplete information, we identify an additional form of inefficiency. In particular, the incumbent operating in a low-stock CPR underexploits the resource in order to signal the low available stock to potential entrants, deterring entry.     

Can incomplete information lead to under-exploitation in the commons?

This paper analyzes the protection of a common pool resource (CPR) through the management of information. Specifically, we examine an entry deterrence model between an incumbent perfectly informed about the initial stock of a CPR and an uninformed potential entrant. In our model, the appropriation of the CPR by the incumbent reduces both players' future profits from exploiting the resource. In the case of complete information, we show that the incumbent operating in a high-stock common pool overexploits the CPR during the first period since it does not internalize the negative external effect that its first-period exploitation imposes on the entrant's future profits. This inefficiency, however, is absent when the commons totally regenerate across periods. Under incomplete information, we identify an additional form of inefficiency. In particular, the incumbent operating in a low-stock CPR underexploits the resource in order to signal the low available stock to potential entrants, deterring entry.     

A qualitative characterization of the competitive nonrenewable resource extracting firm

Using variational differential equations, a systematic qualitative analysis is carried out for the competitive nonrenewable resource extracting firm. The parameters of interest are the output price, variable input price, discount rate, lease length, initial resource stock, and various tax rates. The effects of changes in these parameters on the entire optimal time paths of the current shadow value of the stock, the resource stock, and the extraction rate are characterized in the perturbed phase plane.     

Optimal resource extraction and uncertainty about new technology

The optimal extraction policy of a known resource stock in an economy which has imperfect information about existence of a new technology is discussed. The optimal program is shown to depend on the remaining stock and the current information about existence of the new technology (which is updated every period). For two special forms of social welfare function, the optimal extraction policy is shown to be more conservative than in the situation of perfect information. The effects of improved information and greater availability of the known stock on the optimal extraction policy are also investigated.     

A note on the effect of tax brackets on non-renewable resource extraction

Tax brackets are a common feature of non-renewable resource taxes. Although the introduction of brackets would seem to be an innocuous way of approximating a non-linear tax system, the dynamic effects are surprising. This paper shows that the presence of tax brackets in both a severance tax system and a profits tax system can induce the extractive firm to depart from the well-known monotonically declining extraction profile and to choose instead a profile which has constant extraction rates over some interval of time.     

The social and ecological determinants of common pool resource sustainability

We study a dynamic common pool resource game in which current resource stock depends on resource extraction in the previous period. Our model shows that for a sufficiently high regrowth rate, there is no commons dilemma: the resource will be preserved indefinitely in equilibrium. Lower growth rates lead to depletion. Laboratory tests of the model indicate that favorable ecological characteristics are necessary but insufficient to encourage effective CPR governance. Before the game, we elicit individual willingness to follow a costly rule. Only the presence of enough rule-followers preserves the resource given favorable ecological conditions.     

A density projection approach for non-trivial information dynamics: Adaptive management of stochastic natural resources

We demonstrate a density projection approximation method for solving resource management problems with imperfect state information. The method expands the set of partially-observed Markov decision process (POMDP) problems that can be solved with standard dynamic programming tools by addressing dimensionality problems in the decision maker's belief state. Density projection is suitable for uncertainty over both physical states (e.g. resource stock) and process structure (e.g. biophysical parameters). We apply the method to an adaptive management problem under structural uncertainty in which a fishery manager's harvest policy affects both the stock of fish and the belief state about the process governing reproduction. We solve for the optimal endogenous learning policy—the active adaptive management approach—and compare it to passive learning and non-learning strategies. We demonstrate how learning improves efficiency but typically follows a period of costly short-run investment.     

Good news for environmental self-regulation? Finding the right link

We investigate the stock market response to firm disclosure of positive environmental information and the link from that information to environmental outcomes. We classify environmental media releases by informational content and value relevance, and assess the abnormal stock returns of each type of event. While announcements of future environmental activities lead to the largest favorable stock market reactions, there is no guaranteed link from this type of information to environmental outcomes. Further analysis of the abnormal returns shows that the magnitude of the stock market reaction depends on firm financial characteristics across all event types rather than on firm environmental performance. Our results indicate that the ability for voluntary environmental information disclosure to induce environmental self-regulation is limited to the extent that firms are able to follow through with their announcements of planned environmental activities.     

Dynamic resource management under the risk of regime shifts

This paper provides a framework through which a dynamic resource management problem with potential regime shifts can be analyzed both in a strategic environment and from a social planner?s perspective. Based on a fairly general model, a condition for a precautionary policy is discussed. By applying the framework to a common-property resource problem with a linear production technology, we illustrate how the qualitative as well as quantitative nature of equilibrium is altered due to the possibility of regime shifts. In particular, when the risk is endogenously affected by the players? behavior, potential regime shifts can facilitate the precautionary management of resources as long as the resource stock is in good shape. As the stock of resource becomes scarce, however, the precautionary effect vanishes and more aggressive resource exploitation emerges. The impacts of irreversibility on the equilibrium behavior are highlighted. It is also shown that there can exist a resource-depletion trap in which a regime shift, once it happens, triggers a continuous decline of resource stock no matter which regime materializes in the subsequent periods.     

On the extraction of an exhaustible resource by a monopoly

Hotelling's r-percent rule does not hold for monopoly extractors of durable exhaustible resources. An example with a nondurable resource in which the rule also fails to hold is presented. An economy with a fixed average propensity to save is modelled. The monopoly extractor recognizes that resource extraction, by affecting output and hence capital accumulation, affects future demand. The firm exploits this effect by causing the marginal profitability of extraction to grow faster or slower than the rate of interest, depending upon initial conditions. Conditions are developed under which the growth rate will be less than the interest rate.     

A free lunch in the commons

We derive conditions under which raising costs through a regulatory constraint or a fully expropriated tax can increase the profits arising from a common-pool resource. The basic model assumes a fixed number of identical agents with linear costs selling in a single period at an exogenous price. A necessary and sufficient condition for a cost increase to be profitable is that aggregate output from the resource be locally convex in aggregate effort. We also show that cost increases can be profitable even if price is endogenous, agents are heterogeneous, entry is costless, or agents are playing a Markov-perfect equilibrium of a dynamic game. We also discuss more general welfare implications of the result along with its relation to existing results for a Cournot oligopoly.     

Exhaustible Resource Allocation in an Overlapping Generations Economy

This paper analyzes competitive allocations of an exhaustible resource in an overlapping generations economy. Conditions are given for the existence of equilibrium extraction rules such that both extraction and investment in future stocks are increasing and continuous in the current stock. The paper then considers the time paths of equilibrium allocations and shows that there are economies where equilibrium resource extractions and prices exhibit nonclassical behavior. This is illustrated through a finite horizon example in which extractions increase and prices decrease over the entire time horizon and an infinite horizon example where there are persistent cycles in extractions and prices and multiple equilibria. The paper concludes by examining welfare issues.     

Resource extraction and recycling with environmental costs

Extraction and use of a natural resource is assumed to affect the environment adversely. A perfect substitute for the resource can be supplied through a recycling process. Recycling may also have harmful effects on the environment, but to a smaller extent than extraction. The optimal path of extraction and recycling is studied under various assumptions about the environmental effects of recycling and the assimilative capacity of the environment. In particular, it is shown how the cost of recycling will affect initial resource extraction as well as the environmental quality at the time of resource exhaustion and in the long-run stationary state.     

Bright turquoise as an intraspecific signal in the chameleon grasshopper (Kosciuscola tristis)

Bright colours often communicate important information between conspecifics. In sexually dichromatic species where males exhibit bright colours, two hypotheses are often invoked to explain the function of the colour. First, if a male’s bright colour contains information about his quality, females may prefer brighter males. Equally, male colour may reliably provide other males with information about fighting ability or resource holding potential. In such circumstances, brighter males may win altercations and/or males may use rival colour to assess their likelihood of winning an interaction. In the chameleon grasshopper (Kosciuscola tristis), males but not females turn bright turquoise when their body temperature exceeds 25 °C. In this study, we tested whether the turquoise phase of colour change has a signaling role in inter- and intrasexual contexts. We predicted that females would prefer bright turquoise males over dull males, but found no evidence from several choice experiments to support this hypothesis. We also predicted that brighter males would win more fights than duller males. Whilst we did not find that brighter males won more fights in staged experiments, we found that the brightness of males who chose to enter fights was significantly correlated with their opponents’ brightness. Our results suggest that the brightness of males’ turquoise phase may provide competitors with important information about their rival’s fighting ability.     

Directing technical change from fossil-fuel to renewable energy innovation: An application using firm-level patent data

In this paper we provide an analysis of directed technical change in the sector of electricity generation. We rely on patent data in fossil-fuel (FF) and renewable energy (REN) technologies for 5471 European firms over the 1978–2006 period. The novelty of our approach is in the focus on firm׳s heterogeneity in driving technological change. We make a distinction between small specialized firms, which innovate in only one type of technology, and large mixed firms, which innovate in both technologies, to analyse how REN patents can replace FF ones at the sector level both through a shift in innovation activities within existing firms and through firms׳ entry and exit. We use zero-inflated count data estimation techniques to identify the factors that affect specialized versus mixed firms׳ patenting behaviour both at the intensive (i.e., levels of innovation) and extensive (i.e., technological entry) margins. We further investigate the implications of our firm-level estimations for reducing the gap between REN and FF innovation at the aggregate level. We establish two key findings: (1) a decrease in the FF-REN technology gap mainly comes about through technological entry of specialized REN firms following an increase in REN market size; (2) increases in FF prices, FF market size, and FF knowledge stocks all increase the technology gap by increasing mixed firms FF innovation rates. An important implication of our results is that policies aimed at increasing REN innovation should focus on helping small firms to start and sustain innovation in the long-run.     

Green markets, eco-certification, and equilibrium fraud

Consumers voluntarily pay significant price premiums to acquire unobservable environmental attributes in green markets. This paper considers the performance of eco-certification policy under circumstances where consumers cannot discern environmental attributes in goods, but are able to form rational expectations regarding the extent of illicit activities in the green market. The main results are: (i) fraud is less prevalent in green markets when entry barriers limit the number of firms; (ii) conventional environmental policies on polluting techniques increase the incidence of fraud, and can even preclude the use of non-polluting techniques which would otherwise emerge in green markets; (iii) voluntary eco-certification policies can decrease fraud, increase output, and raise profits per firm; and (iv) in cases where the socially optimal resource allocation can be supported, the optimal policy involves negative unit certification fees, positive fixed certification fees and is revenue-generating for the certifying agent.     

Flash competition in male Photinus macdermotti fireflies

Summary The courtship of Photinus macdermotti fireflies involves a flash code in which the male emits a pair of flashes about two seconds apart and the female responds with a flash about 1.2 s after the second flash of the male pair. The male repeats his pair of courting flashes at varying intervals of four seconds or more. Lloyd (1979, 1981 a, b) observed that rival males in Florida sometimes interject flashes between the courtship flashes of the courting male. We have found that the competitive behavior of males of the same species on Long Island, New York, was somewhat different. Rival males timed their competing flashes from either the first or second of the original males's courting flashes. When a competing flash from the rival male was timed from the first courting flash it was synchronized with the original male's second courting flash. When a competing flash was timed from the second courting flash, a delayed flash resulted which appeared after the female's response. In either case the male's display period was preserved, insuring that the female would continue to respond. Either of these rival male flashes could sometimes induce the female to respond in his direction.     

Flattening the carbon extraction path in unilateral cost-effective action

Internalizing the global negative externality of carbon emissions requires the flattening of the extraction path of world fossil energy resources (=world carbon emissions). We consider governments with sign-unconstrained emission taxes at their disposal and seeking to prevent world emissions from exceeding some binding aggregate emission ceiling in the medium term. Such a ceiling policy can be carried out either in full cooperation or by a sub-global climate coalition. Unilateral action has to cope with carbon leakage and high costs, which makes a strong case for choosing a policy that implements the ceiling in a cost-effective way. In a two-country, two-period general equilibrium model with a non-renewable fossil-energy resource, we characterize the unilateral cost-effective ceiling policy and compare it with its fully cooperative counterpart. We show that with full cooperation there exists a cost-effective ceiling policy in which only first-period emissions are taxed at a rate that is uniform across countries. In contrast, the cost-effective ceiling policy of a sub-global climate coalition is characterized by emission regulation in both periods. The share of the total stock of energy resources owned by the sub-global climate coalition turns out to be a decisive determinant of the sign and magnitude of unilateral cost-effective taxes.     

水污染对扬州市水资源存量的影响评价

将水资源分成水资源的流量和存量两部分，估算了扬州市的水资源存量，提出了评价水污染对水资源存量影响的评价方法，并利用这种方法对扬州市水污染对水资源存量的影响进行了评价，得出了扬州市的水资源存量不足，而水污染又对水资源存量产生了较大的影响的结论。     

Optimal management with potential regime shifts

We analyze how the threat of a potential future regime shift affects optimal management. We use a simple general growth model to analyze four cases that involve combinations of stock collapse versus changes in system dynamics, and exogenous versus endogenous probabilities of regime shift. Prior work in economics has focused on stock collapse with endogenous probabilities and reaches ambiguous conclusions on whether the potential for regime shift will increase or decrease intensity of resource use and level of resource stock. We show that all other cases yield unambiguous results. In particular, with endogenous probability of regime shift that affects system dynamics the potential for regime shift causes optimal management to become precautionary in the sense of maintaining higher resource stock levels.