The optimal number of firms in the commons: A dynamic approach

Charles F. Mason, Stephen Polasky

Research output: Contribution to journalArticlepeer-review

38 Scopus citations

Abstract

We consider a common-property resource sold in imperfectly competitive markets. There is a dynamic externality (current harvests lower future stocks, raising future harvest costs) and a static (crowding) externality. Increasing industry size raises costs but lowers prices; thus, it has ambiguous welfare effects. The optimal industry size typically changes over time, so that a first-best outcome cannot be obtained with a fixed number of firms. Single-firm exploitation is optimal only under special circumstances. The socially optimal open-loop steady-state industry size corresponds to the static optimum; both generally differ from the closed-loop steady-state optimum.

Original languageEnglish (US)
Pages (from-to)1143-1160
Number of pages18
JournalCanadian Journal of Economics
Volume30
Issue number4 SUPPL. B
DOIs
StatePublished - Nov 1997

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