MITIGATING THE TRAGEDY OF THE COMMONS THROUGH COOPERATION - AN EXPERIMENTAL EVALUATION

In a commons, each firm's costs rise with industry output. This extern ality can be mitigated if firms jointly restrict harvests, but higher prices result. Repeated interaction usually facilitates cooperation th at lowers harvest rates. Increased cooperation suggests there should b e more firms in the socially optimal market structure. Using experimen tal markets with two to five ''firms,'' we observe the influence of in dustry size on harvest rates. Cooperation increases the socially optim al number of firms in markets when there are static externalities, but not for dynamic externalities. Finally, even when the initial stock i s low, there is little tendency toward resource extinction. (C) 1997 A cademic Press.