The effect of disastrous regime shifts on the non - cooperative use

6 This paper presents an analytically tractable dynamic game in which agents jointly use a 7 resource. The resource replenishes fully but collapses irreversibly should total use exceed 8 a threshold. The initial level of resource use is known to be safe. Because experimentation 9 only reveals whether the threshold has been crossed or not, and the consequence of crossing 10 the threshold is disastrous, it is socially optimal, and a Nash Equilibrium, to update 11 beliefs about the location of the threshold only once (if at all). These learning dynamics 12 facilitate coordination on a “cautious equilibrium”. If the initial safe level is sufficiently 13 valuable, the equilibrium implies no experimentation and coincides with the first-best. 14 The less valuable the initial safe value, the more experimentation. For sufficiently low 15 initial values, immediate depletion of the resource is the only equilibrium. The potentially 16 beneficial effect of the threat of a disastrous regime shift is robust to a variety of extensions. 17 When the regime shift is not disastrous, but the damage increases sufficiently strongly the 18 more the threshold is exceeded, learning may be gradual. (175 words) 19