Economic Theory

, Volume 31, Issue 2, pp 225–254

The Commons with Capital Markets

Research Article

DOI: 10.1007/s00199-006-0090-x

Cite this article as:
Rowat, C. & Dutta, J. Economic Theory (2007) 31: 225. doi:10.1007/s00199-006-0090-x


We explore a dynamic commons problem and assess the welfare consequences of access to capital markets. The commons has a high intrinsic rate of return but its fruits cannot be secured by individual agents. Capital market access allows resources to be held securely and intertemporally transferred, but at a lower rate of return. In a two period model, we completely characterise symmetric consumption and extraction behaviour in four environments: under a strategic and a competitive equilibrium concept, and with and without market access. Strategic equilibria dominate competitive ones: while agents disagree over how to divide the resource, all would prefer it to be larger; the strategic concept allows them to anticipate returns to their conservation. As the number of agents becomes infinite, the strategic outcome converges to the competitive; as the number of agents falls to one, it converges to the planner’s. Market access has a positive effect on welfare owing to its consumption and extraction smoothing properties and a negative effect owing to its creation of an outside option to the commons, encouraging its depletion. A sufficient condition for autarky to dominate market access for some levels of communal endowment is that the world market discount factor exceed the subjective discount factor. Multiple equilibria may arise: these result from market access, not the equilibrium concept.


CommonsCapital marketsWashington consensusProperty rights

JEL Classification Numbers


Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of BirminghamEdgbastonUK