The Effect of Environmental Uncertainty on the Tragedy of the Commons

INSEAD Working Papers Collection, 2010, Issue 84, p1-24We model a common pool resource game under environmental uncertainty. A symmetric group of individuals face the dilemma of sharing a common resource: each player chooses her consumption level and obtains a corresponding share of the common resource; if the total consumption exceeds the sustainable resource size, the resource deteriorates and all the players are worse off. We consider the effect of uncertainty about the sustainable resource size on the outcome of this game. We extend the existing model (Rapoport and Suleiman 1992, Budescu et al. 1995) in two ways: (a) we consider a general deterioration function in contrast to the existing model in which any excess consumption results in total destruction of the common resource; and (b) we consider the effect of ambiguity about the common knowledge probability distribution governing the size of the common resource. We show for ambiguity-averse agents that increasing ambiguity about the size of the common pool resource may lead to lower consumption, in contrast to existing results derived under conditions of risk