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Common Pool Resource Management at the Extensive and Intensive Margins: Experimental Evidence

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Abstract

Policies aimed at managing common pool resources (CPRs) often target only one decision margin, despite the fact that the social efficiency of resource use is determined along multiple decision margins. For example, limited entry fisheries and irrigated land retirement programs focus only on influencing the number of agents engaged in resource extraction (the extensive margin), but ignore the quantity extracted by each agent (the intensive margin). This research uses empirical evidence from a laboratory economics experiment to examine the efficiency of incentive-based policies in a two-stage CPR game. Participants in the first stage decide whether to enter the CPR and in the second stage entrants choose an intensity of CPR use. Policy treatments vary the incentives at the intensive and extensive margins of resource use in a situation where social efficiency can only be maximized in theory through a combination of intensive and extensive-margin policies. We find that observed rates of CPR entry tend to be higher than predicted by theory, while the intensity of resource use is lower than predicted across the range of policy treatments. Although intensive- and extensive-margin policies improve social welfare, policies that target a single margin tend to reduce efficiency by impacting the incentives along the other decision margin. This is particularly true with the extensive-margin policy, which leads to the highest intensity of CPR use by entrants and the lowest observed efficiency among the policy treatments.

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Fig. 1
Fig. 2

Notes

  1. A linear benefit function, as used in most other CPR experiments (e.g., Keser and Gardner 1999; Velez et al. 2009; Delaney and Jacobsen 2016; Abatayo and Lynham 2016) may represent a CPR situation where the harvested resource can be sold at an exogenous price (e.g., a global market for a harvested fish species) and where the marginal opportunity cost of effort spent harvesting the resource is constant. With a linear benefit function, net social benefit is determined only by the total quantity of CPR use. Therefore if there is an opportunity cost to entry it is always efficient to have only one user.

  2. Many previous experiments (e.g., Casari and Plott 2003; Velez et al. 2009; Delaney and Jacobsen 2016), assume CPR users receive a share of the net benefit based on the quantity of resource they harvest. In particular, the net benefit received by individual i in these studies is given by \( NB_{i} = \frac{{x_{i} }}{X}\left( {{\upalpha } X - {\upgamma } X^{2} } \right) \), which reduces to \( NB_{i} = {\upalpha } x_{i} - {\upgamma } Xx_{i} \). This is identical to the net benefit function in our setup except for the added \( - {\upbeta } x_{i}^{2} \) term.

  3. The analytic derivation of this result is provided in “Appendix 2” of the online material.

  4. Although both pure- and mixed-strategy NEs exist in the first stage, our focus is on the pure-strategy NE predictions. Predictions related to the number of entrants and efficiency of CPR use do not change qualitatively under the mixed-strategy NE. The symmetric mixed-strategy NE requires participant i entering with probability p to equate the expected net benefit of entry with ω when the other N − 1 participants in the group choose to enter with probability p (e.g., Fischbacher and Thöni 2008; Anderson et al. 2008).

  5. The number of treatments per participant was limited to three so as to keep the amount of time allotted for the entire session to less than 1.5 h.

  6. The average individual payoff in a given round is 15,094 with socially optimal entry and use and is 9087 with non-cooperative entry and use, a difference of 6007. If other participants follow the trigger strategy, then the present value of the penalty to an individual that makes a one-round deviation from the social optimum is 6007 × (0.85/(1 − 0.85) = 34,038. By comparison, the maximum one-round increase in individual payoff associated with deviating from the social optimum (obtained by entering and using 40 CPR units and assuming that the other two entrants use the socially optimal number of units) is only 11,460. Since the cost to a deviator significantly outweighs the benefit, the social optimum could be supported as a NE.

  7. In the first round, participants were given up to 90 s to use the practice calculator. In all subsequent rounds, they could use the calculator for up to 45 s.

  8. The Wilcoxon rank sum and signed rank tests conservatively use the average number of entrants per group across the first five rounds of each treatment in each session. There are a total of 44 session and treatment outcomes observed.

  9. The variable is included as number of rounds minus one so that the constant term can be interpreted as the probability of entry in the first round in the no-policy treatment (which can then be adjusted based on the quantity of CPR use in the baseline).

  10. Results 1a and 1b are also supported by models that utilize group-level entry outcomes rather than individual outcomes.

  11. In an alternative specification, where baseline CPR use is interacted with each of the treatment indicators, the effect of the baseline CPR is not found to vary across treatments.

  12. Results from a model that allows the coefficient on rounds to vary by treatment (available upon request) show that effects do not vary appreciably across treatments.

  13. The predicted efficiencies from the econometric model differ slightly from the mean efficiencies reported in Table 3, since the econometric model controls for round and treatment order.

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Acknowledgements

This article is based upon work supported by the National Science Foundation under Award 1024896/1024889.

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Correspondence to Jordan F. Suter.

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Suter, J.F., Collie, S., Messer, K.D. et al. Common Pool Resource Management at the Extensive and Intensive Margins: Experimental Evidence. Environ Resource Econ 73, 973–993 (2019). https://doi.org/10.1007/s10640-018-0283-3

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