Strategic Behavior and the Environment > Vol 9 > Issue 1-2

Common Pool Resources with Endogenous Equity Shares

Kiriti Kanjilal, B-208, Research and Development Block, Indraprastha Instititue of Information Technology, , Félix Muñoz-García, 103G Hulbert Hall, Washington State University, USA,
Suggested Citation
Kiriti Kanjilal and Félix Muñoz-García (2021), "Common Pool Resources with Endogenous Equity Shares", Strategic Behavior and the Environment: Vol. 9: No. 1-2, pp 103-143.

Publication Date: 19 Jul 2021
© 2021 K. Kanjilal and F. Muñoz-García
Environmental economics,  Industrial organization
JEL Codes: L10D43D62Q28Q5
Resource regenerationcommon pool resourcesendogenous equity sharessocial optimumequity share taxes


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Equilibrium Analysis 
Welfare Analysis 
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We consider a common pool resource (CPR) where, in the first stage, every firm chooses an equity share on its rivals' profits (cross-ownership), in the second stage, firms compete for the resource, and in the third stage, firms compete again for the resource after it regenerated at a given rate. We identify equilibrium equity shares in this setting, and compare them against the socially optimal shares that maximize welfare. Our results show that equity shares are welfare improving under certain conditions, but can lead to a socially insufficient exploitation of the CPR if shares are large enough; as in a merger where firms equally share equity. We discuss how equity taxes can help firms approach socially optimal appropriation levels.