Download Social and Economic Dimensions of Resource Management

Social and Economic Dimensions of Resource Management:
Experiments on Public Goods and Common Pool Resources
with Endogenous Risk and Benefits
Barry Sopher, Rutgers University
Abstract:
This paper reports on laboratory analysis of public goods provision and common pool resource
management. We study both the economic and the social dimensions of public goods provision
and common pool resource situations by considering alternative sharing rules (proportional to
wealth or equal sharing), distributions of initial endowments, or harvesting rights (equal or
unequal), and risk (low or high risk of losing endowments if the public good is not provided or
maintained, or of losing future benefits from a resource if it is over-used). We are motivated to
study these problems by actual proposed World Bank projects for addressing climate change in
developing countries such as India and Bangladesh. For the case of public goods, we can
conceive of a public good as being an instance of insurance, where the nature of the risk requires
a communal response, or cooperation, if the insurance is to be provided. The game is a threshold
public good game with refunds, meaning that there is a threshold, T, which must be met through
voluntary contributions from the participants, in order that the public good may be provided. If
the threshold is not met, then contributions are refunded, but there is a risk that all endowments
will be lost (think of a flood control project that is only built if there are sufficient contributions).
In the case of the common pool, we can think of the game as being a problem of jointly
restraining current harvesting in order to ensure a stream of future benefits (think of restraining
forest harvesting in order to secure carbon credits). We are particularly interested in exploring
the tension between the distribution of initial endowments (or harvesting rights) and the
distribution of net benefits, as far as how this affects the relative level of success of groups of
participants in providing the public good, or restraining harvesting of a common pool resource.
Briefly, we find that there are noticeable effects from social aspects of the situation. The
distribution of endowments and the sharing rule matter, in the sense that game outcomes are
significantly less efficient when endowment or harvesting rights are asymmetric, and the
interaction of equal sharing rules with these asymmetries also affects efficiency adversely. The
efficiency losses observed for public goods games are not remarkably different from those in
other similar studies. Efficiency losses in common pool resource games are much worse, along
the same dimensions, though also consistent with previous studies. Communication, however,
dramatically improves efficiency in both public goods and common pool games. We argue that
efficiency is improved because the communication sharpens joint beliefs about likely behavior of
other players of both types (highly and poorly endowed). We believe that the role of so-called
“social preferences” in determining outcomes is weak, and that enhanced precision of
expectations via communication is a much better explanation for the observed results.