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Abstract
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), an unregulated global commons. During the industry’s growth, harvesting one more whale imposed an external cost worth about 45 percent of the whale’s market price, and two-thirds of that cost came from entry, exit, and investment. Because open access left it unpriced, firms built 3.6 times the first-best vessel capacity, dissipating 24 percent of first-best welfare. Faster technological progress and longer-lasting demand lower welfare under open access, while they raise it under the first best.