Common Pool Equities: An Arbitrage Based Non-cooperative Solution to the Common Pool Resource Problem

Abstract

It is proposed that a new type of property right termed a “Common Pool Equity” can solve the common pool resource problem. This equity may be presented to any firm that extracts from the resource for a share in profits. It is shown that a profit arbitrage condition ensures that the market and socially efficient solutions correspond whenever market power is absent. The cost externalities are fully internalized.