Multicountry Appropriation of the Commons, Externalities, and Firm Preferences for Regulation

Sherzod Akhundjanov

No 235534, 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts from Agricultural and Applied Economics Association

Abstract: This paper analyzes a common property resource (such as oil field or water reservoir) shared by two countries in the presence of two forms of bilateral externalities: the tragedy of the commons, and the environmental damage resulting from the exploitation of the resource. We demonstrate that both cooperative and non-cooperative forms of regulation produce a negative effect on firms' profits, as they increase firms' unit production costs. However, regulation can also entail a positive effect on profits, given that it mitigates industry overproduction. We show that the magnitude of these two effects depends not only on the type of regulatory instrument, but also on the rate of resource extraction and the environmental damage in each country. We identify conditions under which the positive effect of regulation dominates its negative effect, thus increasing firms' profits and ultimately incentivizing them to support the introduction of regulation, either at the national or international level.

Keywords: Environmental Economics and Policy; Industrial Organization; Public Economics; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 55
Date: 2016
New Economics Papers: this item is included in nep-ene, nep-env and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea16:235534

DOI: 10.22004/ag.econ.235534

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