Common pool equities: An arbitrage based non-cooperative solution to the common pool resource problem

It is proposed that a new type of property right termed a "Common Pool Equi ty" can solve the common pool resource problem. This equity may be presente d to any firm that extracts from the resource for a share in profits. It is shown that a profit arbitrage condition ensures that the market and social ly efficient solutions correspond whenever market power is absent. The cost externalities are fully internalized. (C) 2001 Academic Press.