Anticipatory effects of taxation in the commons: When do taxes work, and when do they fail?

Abstract

This paper considers a common-pool resource where a regulator announces a new policy curbing appropriation (usage fee). While firms respond reducing their appropriation once the fee is in effect, we identify under which conditions firms choose to increase their appropriation before the fee comes into effect. We demonstrate that this policy-induced appropriation increase is more likely when: (1) several firms compete for the resource; (2) firms sustain some market power; (3) firms impose significant cost externalities on each other; and (4) the resource is scarce. Our results, therefore, indicate that policy announcements can trigger increases in resource exploitation before the policy comes into effect.