The WSPC Reference on Natural Resources and Environmental Policy in the Era of Global Change

The following sections are included:

• Foreword
• Contributing Authors
• Contents

This chapter is the introductory chapter for the volume. The chapter begins with a brief overview of the role that Experimental Economics can play in a variety of environmental and natural resource issues. This overview is followed by a review of relevant experimental research, concentrating on experiments designed to address the temporal and environmental uncertainty dimensions that characterize many real world commons in the current era of rapid and unprecedented global change. Subsequently, a chapter-by-chapter summary of the volume is presented.

There is a growing literature that studies the management of Common Pool Resources (CPRs) within the context of controlled laboratory experiments. A major thesis of this work is that non-binding communication (cheap talk) among appropriators of the commons may be sufficient to permit them to manage the commons efficiently without requiring an outside regulator. In this chapter we compare three CPR environments in controlled laboratory sessions with and without non-binding communication. We identify the nature of the differences across the environments and propose several new environments that may support a conjecture that cognitive differences induced by the framing of the sessions leads to the differences we find. Our results suggest that the success of nonbinding communication in reducing over-appropriation from a CPR may be dependent upon the characteristics of the CPR’s yield function, the nature of the communication and the number of appropriators.

In this chapter, we study the importance of preference heterogeneity for the voluntary provision of public goods (PG). Specifically, we examine whether the introduction of a high preference or passionate provider can stimulate the contributions made by other members of a group. We show that the introduction of a passionate provider increases provision, consistent with a hypothesis of only partial crowding out. Similarly, the availability of a tax mechanism increases total provision of the public good. We reproduce two previous results, showing that there are settings in which passionate providers raise other group members’ residual (after-tax) contributions, and settings in which they do not. In addition, many groups opt to rely on public commitment by voting for high (sometimes 100%) tax rates rather than rely on voluntary contributions. The tendency to vote for higher taxes is not always stronger for passionate providers than for the other group members. Rather, they mix between using the commitment device and attempting to influence the decisions of others. Our findings indicate that the presence of agents with heterogeneous preferences and the availability of an endogenous tax mechanism can have important influences on cooperation.

Increased climate variability is anticipated to increase the length and severity of wildfire seasons in the Western U.S. The continued expansion of the Wildland Urban Interface (WUI) compounds the threat homeowners living in these regions face from wildfire. Subsequently, there is a defined need to identify policy options that encourage WUI homeowners to undertake wildfire risk mitigation actions. Such behaviors not only reduce risk to the homeowner but to their neighbors as well. This chapter presents findings from a set of computerized economic experiments designed to examine the effectiveness of using costsharing and contingent insurance regimes to incentivize homeowner mitigation. Results suggest that, while the policy treatments were effective in increasing the probability, an experiment subject undertook at least some mitigation, there was “crowding out” under the treatment regimes. The dissemination of information on subject mitigation actions is shown to mute the potential for “crowding out”.

Laboratory experiments are increasingly used to understand what helps and what hinders collective action and what this implies for the climate negotiations. The many obstacles and conflicting incentives that have contributed to the present negotiation stalemate call for a rethink of the framing of the problem and possibly a new bargaining platform. We review experimental evidence on collective action in threshold public goods (PG) games whose features capture important aspects of the climate change problem. The experiments indicate that the expected loss of crossing the threshold and uncertainty about the threshold are the most important determinants of collective action. The threshold’s role as a catalyzer of cooperation is hindered when uncertainty and especially ambiguity about its location is introduced. Wealth inequality and the credibility of the pledges constitute further difficulties. Early action can help by signaling willingness to cooperate with high initial contributions but such behavior seems to be the exception rather than the rule. We compare the results of these experiments to related work employing evolutionary game theory, finding that the above conclusions are generally robust to the particulars of the design.

Ecosystems at different scales can experience so-called regime shifts — large, abrupt and persistent changes in the system’s structure and dynamics with potentially significant impacts on human well-being. The double challenge posed by regime shifts combined with common pool resources (CPRs) could lead to severe suboptimal extraction. To address this challenge, safe standards in the form of quotas have been put forward as one potential solution. In this chapter we have designed a lab-experiment in order to analyze how a CPR system regulated by a quota performs in comparison with an unregulated system where the regime shift is manifested as a latent abrupt drop in the renewal rate at a certain critical threshold. We predict that the unregulated system will perform equally or worse with respect to inefficiencies stemming from over-exploitation. Contradictory to our prediction however, the results reveal that regulated systems on average are associated with lower efficiency, which stems both from underand over-exploitation. We suggest that the outcome could be due to the (lack of) information with respect to the resource dynamics given to regulated groups, and/or that the responsibility for proper management in this case is transferred to the regulator.

Climate change adaptation is fundamentally a decision to incur certain costs now in return for uncertain benefits and costs sometime in the future. Thus humans’ time and risk preferences will shape how individuals and groups adapt on their own and in response to public policies and programs. Experimental behavioral scientists are doing important research to elucidate these preferences. We summarize the relevance of this research for the design of adaptation policies and programs. Recent research suggests a great deal of heterogeneity in risk and time preferences among individuals, which has implications for designing risk communication strategies and adaptation program incentives. It also highlights that more effort to reduce the perceived uncertainty about the efficacy of available adaptation options may be more fruitful than current efforts to increase the perceived certainty about the damages from climate change. Moreover, experimental estimates of individual discount rates are sufficiently high to make adaptation for climate events 20 or more years in the future unprofitable for most individuals (time inconsistent preferences in some people only reduces the perceived returns further). We outline a research agenda that can shed more light on aspects of time and risk preferences that are relevant for climate change adaptation.

The European Union (EU), Emissions Trading System (ETS) is a major tool of the European Union’s policy aimed at mitigating global climate change. Since its introduction in 2005, the system has undergone several changes whereby auctions, rather than cost-free allocation, have been given an increasing role as a means of allocating emission permits. These auctions are currently run as sealed-bid, uniform-price auctions which induce demand reduction in multiunit environments such as the EU ETS. This auction format may therefore contribute to the growing surplus of permits observed in the EU ETS. In this chapter, we examine the performance of the theoretically appropriate Ausubel auction format under structural characteristics mimicking those in place in the EU ETS. The results provide evidence supporting the desirable properties of the Ausubel auction, but also indicate that it may lead to inequitable outcomes. In view of this, it is worthwhile to study not only how alternative auction formats could provide a sustainable solution to the surplus of permits, but also how they relate to the problem of carbon leakage resulting from regional carbon trading schemes.

The following section is included:

• Index