Title

Sustainability or ruin of a common resource economy with random jump

Abstract

We consider a common resource economy in which agents exploit the common resource, and use it to produce goods and consume the goods produced. Also the agents can invest in private and productive capital. The resource extracted from the common resource is non-renewable and the common pool is under unceratinty in the sense that it could have a sudden increase or decrease in the course of extraction. In this model we shall explore the probability of sustainability or ruin of the economy. We compare and discuss the optimal extraction rules and the probabilities under cooperative and non-co operative regimes.

Keywords: common property resource, private capital accumulation, pure jump process, exhaustion probability, HJB (Hamilton-Jacobi-Bellman) equation

JEL Classification: Q32