Can Uncertainty Alleviate the Commons Problem?

Global commons problems, such as climate change, are often affected by severe uncertainty. The paper examines the effect of uncertainty on pollution emissions and welfare in a strategic context. We find that emissions are always lower under uncertainty than under certainty, reflecting risk-reducing considerations. We show that uncertainty can have a net positive impact on the welfare of risk-averse polluters. We extend the analysis to increases in risk, increases in risk-aversion, and to risk heterogeneity. (JEL: D81, C72, Q54, H23) (c) 2009 by the European Economic Association.