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Cooperative and Noncooperative Extraction in a Common Pool with Habit Formation

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  • Sébastien Rouillon

    (GREThA - University of Bordeaux)

Abstract

The present paper considers the exploitation of a common-property, nonrenewable resource, by individuals subject to habit formation. We formalize their behavior by means of a utility function, depending on the difference between the individuals’ current consumption and the consumption level which they aspire, the latter being a weighted average of past consumptions in the population. We derive and compare the benchmark cooperative solution and a noncooperative Markov-perfect Nash equilibrium of the differential game. We investigate how the intensity, persistence and initial level of habits shape the cooperative and noncooperative solutions. We prove that habit formation may either mitigate or worsen the tragedy of the commons.

Suggested Citation

  • Sébastien Rouillon, 2017. "Cooperative and Noncooperative Extraction in a Common Pool with Habit Formation," Dynamic Games and Applications, Springer, vol. 7(3), pages 468-491, September.
    • Handle: RePEc:spr:dyngam:v:7:y:2017:i:3:d:10.1007_s13235-016-0192-4
    DOI: 10.1007/s13235-016-0192-4
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    Cited by:

    1. Bertrand Crettez & Naila Hayek & Lisa Morhaim, 2019. "Growth and Insecure Private Property of Capital," Dynamic Games and Applications, Springer, vol. 9(4), pages 1042-1060, December.

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    More about this item

    Keywords

    Differential games; Nonrenewable resource; Common-property; Habits; Social status;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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