Harvest uncertainty and the tragedy of the commons

Abstract

This paper demonstrates that a fixed number of risk-averse firms faced with harvest uncertainty owing to resource stock uncertainty will typically reduce their exploitation of a commons. In addition, the total exploitation of the industry will decrease when entry is permitted and uncertainty is compared with certainty. This result holds for perfectly competitive output markets and also characterizes imperfectly competitive output markets with linear market demand and risk-neutral firms. In the latter case, the socially optimum number of firms is determined based upon the degree of uncertainty, the price elasticity of market demand, and the elasticity of input productivity.