Can uncertainty alleviate the commons problem

Abstract: Global commons problems, such as climate change, are often affected by severe un-certainty. The paper examines the effect of uncertainty on pollution emissions and welfare in a strategic context. We find that emissions are always lower under uncertainty than under cer-tainty, reflecting risk-reducing considerations. We show that uncertainty can have a net positive impact on the welfare of risk-averse polluters. We extend the analysis to increases in risk, in-creases in risk-aversion, and risk heterogeneity. A policy implication is that the establishment of risk-sharing institutions should generally not predate arrangements addressing the commons problem