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Payments or Persuasion: Common Pool Resource Management with Price and Non-price Measures

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Abstract

We use lab experiments to study policies that address common pool resource overuse. We look at a price mechanism, specifically a Pigouvian subsidy, and four non-price interventions. The non-price policies are information alone, information with a normative message, communication alone, and normative messages with communication allowed. In all experiment sessions, no intervention occurs in the first seven and last seven rounds, allowing us to examine the effects of introducing and taking away a policy. The subsidy leads to near-efficient extraction, but surprisingly leads groups that were not over-extracting to also reduce extraction. This over-compliance decreases efficiency, although on net the subsidy is the most efficiency-enhancing intervention. Information provision, communication, normative appeals, and normative appeals combined with communication all reduce over-extraction (though by less than the subsidy) without exacerbating over-compliance; however, the effects of information alone and communication alone are small and not robust. The non-price policies cause a decline in over-extraction of from 0.549 (information) to 11.441 % (normative appeals with communication). These effects are of the same order of magnitude as the effects seen in major field studies of conservation messaging. The subsidy has the worst persistence properties (after the intervention ceases), while normative messages with communication have the best.

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Notes

  1. “Congestion” and “overuse” are used somewhat interchangeably in the literature on CPRs. In this paper, we refer primarily to “overuse” as the CPR problem we address results from excessive consumption within a group of fixed size, rather than “congestion,” which could mean a superabundance of users.

  2. Another tool for fighting externalities is decentralized Coasian bargaining (considered experimentally in, e.g. Harrison et al. 1987). Various work by Ostrom and her coauthors has shown that varying other parameters (e.g. endowment) can lead to changes in appropriation levels, all else equal; so while we focus here on price and information, other elements can affect behavior.

  3. Here and elsewhere, we use “Nash equilibrium” to refer to the Nash equilibrium under the standard assumption that agents derive utility only from their own payoff.

  4. Suter et al. (2012) show that an accurate model of groundwater as a CPR involves less externality and more private cost burden than the standard model, and in a lab experiment they show that this model (as one would expect) yields less over-consumption.

  5. We are most interested in use of information to encourage cooperation, but information can also be used to enable coordination, as in Anderson et al. (2007), who find that information on current congestion levels can help subjects coordinate to reduce variance and therefore increase efficiency.

  6. We derive these, the optimal (Pigouvian) subsidy, and the total resource yield at the optimum in the online supplementary material.

  7. In this context, recalling that \(x^{SO}\) is the level of CPR consumption at the social optimum, net efficiency would be \(\frac{G(\cdot )+\sum _{i=1}^n \alpha (z_i-x_i)}{G^{SO}+\sum _{i=1}^n \alpha (z_i-x^{SO})}\).

  8. When the subsidy is added, the Nash equilibrium of the modified game shifts to the socially optimal condition of the original game, and as an externality still exists the modified game has what would appear to be a new social optimum. The goal of policy is to reach the social optimum of the un-modified game. At the same time, the subsidy is not assumed to inherently have any efficiency costs or gains, but is assumed to be a transfer. The efficiency costs of raising funds to pay the subsidy are discussed in Sect. 4.3.

  9. A return of zero for the outside option is unusual in the literature. However, increasing the return to the outside option would require an offsetting increase in the return to the CPR, as the difference in these returns governs strategic considerations. This would amount to a strategically irrelevant transfer from experimenters to subjects. Setting the opportunity cost to zero thus allows us to make the payoff space as responsive to different levels of investment in the CPR as possible. In addition, this removes any ambiguity about the definition of efficiency as discussed above.

  10. This statement was true for all of our subjects because we ran the normative treatment after having run some sessions of the other treatments.

  11. Face-to-face communication would not meet these criteria, for example, and would risk a loss of experimental control. In this treatment, for a sensible tradeoff between flexibility and control, we observe all subject behavior and use a decentralized communication institution to compare to the centralized messages sent in the other nonpecuniary treatments.

  12. Instructions are available on the corresponding author’s website and in the online supplementary material.

  13. In the instructions and the tutorial, the returns to RED and BLUE differ from those used in decision-making rounds to discourage subjects from anchoring to any choices they see as examples.

  14. The instructions imply but do not explicitly state that groups will remain fixed for all rounds. Similarly, subjects are not explicitly told that payoff functions are identical for all group members, although it is implied. Subjects seemed to understand both of these features.

  15. There was no explicit test of subject understanding; however, subjects did not appear confused, and the data that we will present—such as the fact that average contributions drop to the new Nash when a subsidy is imposed and rise again to the new Nash when the subsidy is removed—indicate general understanding.

  16. Results are robust to individual-level analysis.

  17. Most decisions are not corner choices: only 18 (0.362 %) individual-round choices are zero, only 1,355 of 4,977 (27.225 %) individual-round choices are full endowment (10 tokens), and 32 of 1,659 (1.929 %) group-round aggregate choices are group endowment (30). The rate of choosing full endowment appropriation varies directly with the average extraction across treatments and phases. As mentioned below, regression results hold for a Tobit specification that accounts for censoring, so censoring is not driving our results.

  18. The results are robust to a panel regression specification.

  19. We compare average behavior to the Nash prediction simply as a benchmark. Individual behavior may diverge from treatment averages so an average of Nash behavior would not necessarily imply Nash play.

  20. This under-extraction could theoretically occur because risk-averse agents who are uncertain about how their group members will play may shift their allocation from the CPR to the outside option, since the latter has a certain return.

  21. The CPRs in those studies are large enough to preclude the situation where resource user A tries to convince others to reduce their use to increase resource returns so that A can get larger gains from exploitation.

  22. While the number of individual choices at 10 tokens is nontrivial, so one might fear that the Nash of 9 tokens is too close to that edge to allow discrimination, in Table 1 we can see that there is sufficient statistical power to distinguish between differences much smaller than a token. Therefore, we are confident declaring Baseline 2 behavior in the Subsidy treatment to be indistinguishable from the Nash. Further, since we observe group average contributions essentially moving from one Nash to another when the subsidy is removed, this behavior seems too much like profit-maximization to be an accident.

  23. While treatment is exogenously varied, the valence of normative and information messages are endogenous to group behavior; therefore we cannot speak to the effects of “mismatched” messages, e.g. a message to under-extractors that they should reduce extraction.

  24. Without dummies indicating the group’s “type” (over-, under-, or optimal-extractor in the last period), the treatment-type interaction dummies would give effects relative to an inappropriate counterfactual that includes groups of other types, thus biasing results.

  25. These results are robust to other sets of control variables. Results are unchanged with random effects, or when a Tobit model (which accounts for group-level censoring in appropriation) is used.

  26. When random-effects regressions are conducted at the individual level, the number of times the subject used the tutorial has a significant and positive coefficient of 0.180–0.199. This seems to be driven by high appropriation levels by a small number of subjects who each practiced a large number of times. It is not possible to determine how much a subject uses the calculator available in the decision screen.

  27. In Specification 1, the effect of information was not significantly different from the effect of the subsidy on under-extractors, \(p=0.514\), and was almost significantly different in Specification 3, \(p=0.101\).

  28. The results are robust to a panel regression specification.

  29. The efficiency of the subsidy is higher than the 93 % observed with a Pigouvian tax in Plott (1983), but Plott notes that the efficiency of his tax treatment was likely not statistically different from that of his license treatment (at 98.3 %). If there is a difference, it may be due to tax aversion (see, e.g. Kallbekken et al. 2011 and Heres et al. 2013).

  30. For example, Ballard et al. (1985) find that each additional dollar of revenue comes at a welfare cost of 17–56 cents, and Allgood and Snow (1998) estimate the cost to be 13–28 cents.

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Authors and Affiliations

  1. School of Business, Georgia Gwinnett College, 1000 University Center Lane, Lawrenceville, GA, 30043, USA

    Jason Delaney

  2. Department of Economics, Williams College, 24 Hopkins Hall Dr., Williamstown, MA, 01267, USA

    Sarah Jacobson

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  1. Jason Delaney
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  2. Sarah Jacobson
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Correspondence to Sarah Jacobson.

Additional information

We thank James Cox, Cary Deck, Ragan Petrie, Vjollca Sadiraj, Christian Vossler, two anonymous referees, and colleagues and seminar participants for comments and suggestions. We thank Georgia State University and Williams College for funding.

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Delaney, J., Jacobson, S. Payments or Persuasion: Common Pool Resource Management with Price and Non-price Measures. Environ Resource Econ 65, 747–772 (2016). https://doi.org/10.1007/s10640-015-9923-z

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