EconPapers    
Economics at your fingertips  
 

Splitting an Uncertain (Natural) Capital

Jérémy Laurent-Lucchetti, Justin Leroux and Bernard Sinclair-Desgagné

No 11-01, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: Most natural commons are subject to discontinuities and threshold effects, so their gradual depletion may result in a sudden irreversible loss of the associated ecological services. Yet, it is often impossible to locate these thresholds with certainty. We analyze this context using a variant of the divide-the-dollar game, in which the amount to be split among players follows a discrete or multimodal probability distribution. ‘Cautious equilibria’ – where agents collectively behave as if the worst-case scenario were certain - are found to coexist with ‘dangerous equilibria’ - where overall demand for ecological services might lead to their collapse - and ‘dreadful equilibria’ - where agents collectively request so much natural capital that a collapse of ecological services is certain, even if all agents are risk averse. Communication/cooperation among agents, however, which raises the possibility of coordinated group deviations, would eliminate dreadful equilibria and reduce the occurrence of dangerous equilibria, while cautious equilibria are robust to such deviations. A direct corollary is that dangerous equilibria are Pareto-dominated by any cautious equilibrium in which all agents claim less natural capital. These results shed light on the management of common-pool resources, international climate change negotiations, and the implementation of precautionary policies.

Keywords: Common-pool resources; Ecological thresholds; Divide-the-dollar game; Coalition-proof Nash equilibrium (search for similar items in EconPapers)
JEL-codes: Q50 C72 D74 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-01
New Economics Papers: this item is included in nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.hec.ca/iea/cahiers/2011/iea1101_jleroux.pdf (application/pdf)

Related works:
Working Paper: Splitting an Uncertain (Natural) Capital (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iea:carech:1101

Ordering information: This working paper can be ordered from
Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7

The price is Free.

Access Statistics for this paper

More papers in Cahiers de recherche from HEC Montréal, Institut d'économie appliquée Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7. Contact information at EDIRC.
Bibliographic data for series maintained by Patricia Power ().

 
Page updated 2020-11-29
Handle: RePEc:iea:carech:1101