Complexities in Common Property

In an optimal growth setting, where the only productive asset is a renewable resource which is jointly exploited, it is shown that competitively the resource may be over-used or under-used. The diversion from optimal use arises due to the externality embodied in the jointness of exploitation and would intuit over-use. Surprisingly, under-use has been derived as an equilibrium phenomenon by Dutta and Sundaram [93] when agents strategically interact in a dynamic game. However, as is shown here, strategic interaction is not necessary. The phenomenon of under-use may arise within a perfectly competitive model because the externality pushes implicit resource prices above the optimal when the discount rate is less than natural adjustment. ∗Drafts of this paper have beneøted greatly from the comments and advice of Jon Conrad, Robert Deacon, David Easley, and Tapan Mitra. The author would also like to thank participants at Cornell’s Theory Work-In-Progress Seminar. The author accepts full responsibility for the content.