Oligopolistic Tragedies. National Governments and the Exploitation of International Common Property / Oligopolistische Tragödien. Nationale Regierungen und die Ausbeutung internationaler Allmendegüter

Abstract

Summary In this paper a standard two-stage Coumot-oligopoly game is used to analyze some aspects of the economics and politics of international common property. In stage 1, governments which host firms using the commons decide on optimal input taxes. In stage 2, profit maximizing firms choose the level of a variable input. Private decisions in this stage imply the well-known overexploitation of the commons. The “tragedy of the commons”, however, is further aggregated by the policy decisions of welfare maximizing governments in stage 1, since governments have incentives to implement policies to shift rents from foreign to domestic firms. On the other hand, governments behaving cooperatively could set input taxes such that the commons is used efficiently. Coordination of tax policies, retaliatory mechanisms in situations of repeated interaction, and international firm ownership are discussed as potential solutions to this twofold problem of the commons.