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A Free Lunch in the Commons

Matthew Kotchen and Stephen Salant

No 15086, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We derive conditions under which cost-increasing measures - consistent with either regulatory constraints or fully expropriated taxes - can increase the profits of all agents active within a common-pool resource. This somewhat counterintuitive result is possible regardless of whether price is exogenously fixed or endogenously determined. Consumers are made no worse-off and, in the case of an endogenous price, can be made strictly better-off. The results simply require that total revenue be decreasing and convex in aggregate effort, which is an entirely reasonable condition, as we demonstrate in the context of a renewable natural resource. We also show that our results are robust to heterogeneity of agents and, under certain conditions, to costless entry and exit. Finally, we generalize the analysis to show its relation to earlier work on the effects of raising costs in a model of Cournot oligopoly.

JEL-codes: H23 Q2 (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-reg
Note: EEE PE
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Citations: View citations in EconPapers (3)

Published as Kotchen, Matthew J. & Salant, Stephen W., 2011. "A free lunch in the commons," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 245-253, May.

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Journal Article: A free lunch in the commons (2011) Downloads
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