Yangkeun Yun

Inefficiencies in the commons arise not only from resource use by existing participants but also from their capacity investment and the entry of new firms. This paper develops a model of firm dynamics with common-pool externalities and estimates it using firm-level panel data from the American whaling industry (1804-1909). I find that ignoring firms’ entry, exit, and investment understates the shadow value of whales, so a policy built on it forgoes much of the achievable welfare gain. In the long run, faster technological progress and longer-lasting demand lower welfare under open access, as excessive entry and investment exacerbate externalities.

We study how utility regulation—which distorts water pricing and investment decisions—interacts with dynamic common-pool resource externalities in groundwater aquifers. We estimate a model of the regulator's preferences, water utility capacity investment and pricing, household water demand, and spatial and dynamic groundwater extraction externalities using a new panel encompassing more than a half-century (1970-2023) of investment, well capacity, and aquifer levels among more than three hundred California groundwater suppliers occupying more than one hundred distinct water basins. The results indicate that regulation creates much larger distortions than either dynamic or spatial extraction externalities, largely due to the natural recharge of groundwater supply and the limited hydrological connectivity of aquifers.