Tragedy of the Commons in a Stochastic Game of a Stock Externality

Franz Wirl

Journal of Public Economic Theory, 2008, vol. 10, issue 1, pages 99-124

Abstract: This paper investigates a tragedy of the commons where an Ito-process traces the accumulation of pollution and differentiates between reversible (i.e., clean up is feasible) and irreversible emissions (past pollution cannot be undone). The reversible case allows for an explicit analytical solution, while other means are necessary to characterize irreversible outcomes. More precisely, a different characterization of equilibria (in Markov strategies) as smooth connections between an initial and a stopping manifold is suggested. Copyright 2008 Blackwell Publishing, Inc..

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