Does inequality lead to greater efficiency in the use of local commons? The role of strategic investments in capacity

Rimjhim M. Aggarwal, Tulika A. Narayan

Research output: Contribution to journalArticle

18 Scopus citations

Abstract

This paper examines how inequality in access to credit affects the strategic behavior of users of a common resource in their investment and extraction decisions. A dynamic two-stage game is developed in which agents choose the level of sunk investment in capacity and the consequent extraction path. The results show that agents invest in excess capacity, except when inequality is very high. The relation between inequality and efficiency in resource extraction is found to be non-monotonic, with the steady-state resource stock being closest to the optimal level when either inequality is very high or very low.

Original languageEnglish (US)
Pages (from-to)163-182
Number of pages20
JournalJournal of Environmental Economics and Management
Volume47
Issue number1
DOIs
StatePublished - Jan 2004
Externally publishedYes

Keywords

  • Access to credit
  • Capacity
  • Common pool resources
  • Equilibrium
  • Groundwater
  • India
  • Inequality
  • Markov perfect
  • Strategic investment

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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