Prof Quentin Grafton and Dr Michael Ward

Extraction from a common pool resource may result in a divergence between competitive and optimal rates of extraction. This article develops a theoretical model to estimate the size of the payoffs from this divergence under alternative spatial representations. Results show that when a resource is heterogeneously distributed spatially, assuming a spatially homogeneous distribution can underestimate the losses with competitive extraction. An application of the model to a real-world aquifer shows the importance of recognizing spatial heterogeneity in resource extraction problems to: (1) provide robust estimates of the costs of sub-optimal extraction and; (2) implement appropriate corrective policies.