DYNAMIC MECHANISM DESIGN FOR A GLOBAL COMMONS

We model dynamic mechanisms for a global commons. Countries value both consumption and conservation of an open access resource. A country's relative value of consumption to conservation is privately observed and evolves stochastically. An optimal quota maximizes world welfare subject to being i...

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Bibliographic Details
Published inInternational economic review (Philadelphia) Vol. 58; no. 3; pp. 751 - 782
Main Authors Harrison, Rodrigo, Lagunoff, Roger
Format Journal Article
LanguageEnglish
Published Philadelphia Wiley Periodicals, Inc 01.08.2017
Wiley-Blackwell
Blackwell Publishing Ltd
Subjects
Bayesian analysis
Conservation
Consumption
Economic models
Economic theory
Global commons
Globalization
Resource allocation
Welfare
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Summary:We model dynamic mechanisms for a global commons. Countries value both consumption and conservation of an open access resource. A country's relative value of consumption to conservation is privately observed and evolves stochastically. An optimal quota maximizes world welfare subject to being implementable by Perfect Bayesian equilibria. With complete information, the optimal quota is first best; it allocates more of the resource each period to countries with high consumption value. Under incomplete information, the optimal quota is fully compressed: Identical countries receive the same quota even as environmental costs and resource needs differ. This is true even when private information is negligible.
Bibliography:We thank seminar participants at Brown, NYU, CETC Montreal, the NBER Summer Political Economy and Public Finance Workshop, USACH (Chile), University Carlo Alberto, and Masaki Aoyagi, Sandeep Baliga, Andy Postlewaite, Debraj Ray, and three anonymous referees for valuable comments and suggestions.
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ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12234