A Mechanism for Quota Distribution in the Local System of Common Resources Use Under Information Asymmetry

This paper proposes an economic mechanism designed to address the problem of overuse in common resource management in local economic systems, in particular – in ecologically fragile mountainous touristic regions. The proposed mechanism draws on recent advancements in behavioural economics, game theory, and environmental economics to develop a framework that can be tailored to the specific characteristics of some local economic systems that depend on using a common resource pool. An allocating agent sequentially proposes possible allocations of a limited number of quotas to entrepreneurs in the form of threshold separating questions. The entrepreneurs' binary choices signal their internal assessments of the minimum number of quotas required for profitable operations. Under complete information, regardless of the principle used to determine the proposed budget allocations, an efficient allocation always exists in such a mechanism, representing a subgame-perfect Nash equilibrium. Under uncertainty, the method for proposing allocation options matters—the optimal solution is found by organizing it in a form of an English auction. An advantage of the proposed mechanism is its robustness: for its effective application, determining precise minimum quotas for each participant is not necessary.