The Tragedy of the Commons?

Prajit K Dutta and Rangarajan K Sundaram

Economic Theory, 1993, vol. 3, issue 3, 413-26

Abstract: We provide a complete characterization of the set of Markov-Perfect Equilibrium (MPE) of dynamic common-property resource games a la Levhari and Mirman (1980). We find that all MPE of such games exhibit remarkably regular dynamic behavior. Surprisingly, however, and despite their memoryless nature, MPE need not result in a "tragedy of the commons", i.e., overexploitation of the resource relative to the first-best solutions. We show through an example that MPE could, in fact, lead to the reverse phenomenon of underexploitation of the resource. Nonetheless, we demonstrate that, in payoff space, MPE are always suboptimal.

Date: 1993
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