A dynamic common resource model: Stochastic shocks and consumption externalities

This study introduces uncertainty into a simple growth model of common capital accumulation by considering consumption externalities. We consider two equilibrium concepts, including the Markovperfect Nash equilibrium and cooperative solution, and examine how uncertainty affects the difference in the growth of common capital. Our results show that individuals’ attitudes toward uncertainty change depending on the consumption externality type. Consumption externality types exist wherein the expected growth rate of common capital increases as uncertainty increases. We conclude that the problem of the “tragedy of the commons†is improved by greater uncertainty if individuals demonstrate jealousy and “keeping up with the Joneses,†or admiration and “running away from the Joneses.â€