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Common-pool resource experiments

Econ333

Fall 2014

Copyright James J. Murphy. Material may not be reproduced or redistributed without permission.

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Today’s agenda

Your thoughts on the experiment

Common-pool resources in general

Experimental research

Concluding remarks

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Your thoughts on the experiment

What happened and why?

Was the regulation effective? Why?

Was communication effective? Why?

What are some policy implications of the results?

Your results…

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Common-pool resources

A CPR is a resource that is shared by many people, and utilization by one person affects the welfare of others.Example:Ocean fisheries

If you catch a lot of fish, not only are there fewer fish for me, but they are also harder (and more costly) to find.

Can lead to over-harvesting / destruction of the fishery.

If you don’t catch the fish, someone else will…

Intellectual roots of CPR research

Elinor Ostrom Political Scientist @ Indiana

University 2009 Nobel Prize in Economics Her husband Vincent was a

Consultant on Natural Resources, Alaska Constitutional Convention, 1955–1956.

Helped draft the Natural Resource article for the AK Constitution.

What is do I mean by the “commons”?

Loose definition shared natural resources

Characteristics1. Finite or limited resource (rival in consumption)

2. Resource use subtracts from the stock If I catch a fish, then it’s not there for you

Either:

3a. Difficult to exclude users (non-excludable) e.g, open access fisheries (common pool resource)

or

3b. Common ownership (common property) e.g., communal grazing lands

no private property rights

Examples of common-pool resources

Open-access fisheries

Irrigation systems in developing nations

Communal grazing lands

Forests

Internet bandwidth

Earth’s atmosphere ability to absorb greenhouse gas emissions

Aristotle (384 BC – 322 BC)

“For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest.”

H. Scott Gordon (1954)

If ocean resources are rich, why are fishermen poor?Why isn’t this a problem with other natural resources? "overexploitation" in the fishery [is], in

reality, [a] manifestation of the fact that …[these] natural resources are owned in common and exploited under conditions of individualistic competition.”

Garrett Hardin (1968) – Tragedy of the Commons

“Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”

Gov. William Bradford (1623)

When pilgrims settled in 1620, farmlands were owned in common Not by choice, imposed on

them by investors

By 1623, colony was having trouble feeding itself Theft increased, as did

“illnesses”

At length after much debate of things, [I] (with the advice of the chiefest among them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves. ... And so assigned to every family a parcel of land.”

Gov. William Bradford (1623)

"This had very good success for it made all hands very industrious, so as much more corn was planted than otherwise would have been ...”

The first Thanksgiving celebrated the abundant harvest in 1623.

Törbel, Switzerland

Private land holdings for agriculture Clearly familiar with +/– of

private property

Yet…grazing in communal alpine meadows Common property since 1483 No problems with overgrazing

2 questions Why successful? Why common property?

Common property management in the Swiss Alps

Limited access to citizens No outsiders – land ownership did not automatically

confer communal rights

Wintering rule No more cows than one could feed over the winter Enforced with fines

Rules voted on by citizens Not much different than a modern homeowner’s

association

Why might common property make sense?

Risk-pooling rainfall varies across region

Economies of scale building infrastructure building, maintaining irrigation system

Low productivity, large territory needed

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CPR failure: Mawelle, Sri Lanka fishery

Developed complex rules for who could fish where/when rotation system to share wealth

Population pressure led to more fishing nets by villagers

Govt built a road to Mawelle & ice factory Prices increased 4x

Govt passed laws limiting number of nets Poorly enforced bribes

Entrepreneurs bought shares in multiple nets undermined rotation system

Properties of long-enduring CPRs

Local or regional scale within a single country Villages, watersheds

Users have significant stake in resource Depend upon it for livelihood

Common understanding about how the resource works How their actions affect the resource & each other

Social norms defining proper behavior Might not be formal rules

Trust in others – social capital

Properties of long-enduring CPRs (cont.)

At least some local autonomy Engaged in decisions about resource management

Rules aligned with resource characteristics Adapt quickly to changes

Enforcement mechanism Monitoring behavior Sanction improper use

People often more responsive to social sanctions than financial penalties

“Trust but verify”

Experiments

Predictions about tragedy of the commons based on neoclassical economic model of rational, self-interested agents Model supported in open, competitive markets, esp. in

industrialized societies Not always supported in field studies of local resource

use Mix of motives

Self-interested free-riders Reciprocators (conditional cooperators) Altruists (unconditional cooperators) Conformists

Some lessons learned from CPR experiments

Open access (no rules or property rights) leads to overexploitation

When given opportunity, people can develop institutions (formal & informal) and punish noncompliance

People often more responsive to social sanctions than financial penalties

Weakly enforced rules imposed by external regulators can crowd-out intrinsic motivation

Simply passing a law is not the same as creating an effective institution

Substantial regional variability in responsiveness to formal and informal rules Need to understand local situation Relationship between formal regulations and informal rules likely to be

community-specific

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CPR Institutions

How should shared natural resources be managed to ensure long-term viability?

Will government control over the resource help?Formal, externally imposed rules & regulations

What about group collective action? Informal rules, social norms

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Results from some of our recent CPR experiments in Colombia

What motivates participants? Tested theoretical models of pure self-interest, altruism,

reciprocity, inequity aversion, conformity Model of conformity best explains outcomes

Within and between group effects Communication stabilizes choices within a group, but

different groups converge on different outcomes Reverse is true with penalties

Regional characteristics Relationship between formal and informal rules likely to

be correlated with community characteristics

KEY RESULTS FROM CPR EXPERIMENTS

Ostrom, JEBO 2006

Poteete et al, “Working Together” 2010

Early research

For study of commons, or social-ecological systems (SES), both public goods and CPR experiments are relevant. Social dilemmas in which groups are better off

cooperating, but incentives to free-ride

Early lab experiments based on Ostrom, Gardner, Walker (1994) Static environment, multiple rounds

Key Insights

Communication effects Face-to-face communication is just “cheap talk” but has

an incredibly powerful, positive effect on cooperation Even with anonymous, private decisions

Simple promises to reduce harvests led to changes in behavior

People indignant when cheating observed Cheaters improved cooperation after hearing comments

from others

Communication

Still some debate about why communication improves cooperation Not likely due to improved understanding of the game

(Edney & Harper 1978; Kerr & Kaufman-Gilliland 1994) Voicing commitments and development of group identity

& norms (survey by Shankar & Pavitt 2002) May change people’s expectations about others’

decisions e.g., update priors on whether others are reciprocators

Limited communication experiments (Schmitt et al 2000)

Baseline CPR game, varied communication In all treatments, 6 of 8 players could communicate T1: 2 “outsiders” were computers making random

decision between 4-12 T2: 2 “outsiders” were real people with no constraints on

choices T3: 2 “outsiders” were people making constrained

decision between 4-12

Key result Communication is less likely to be effective in preventing

overharvesting when a subset cannot or will not communicate

Does type of communication matter??

Brosig et al (German Econ Review)

Varied pre-play communicationTreatment Verbal

comm.Anonymous interaction

Baseline No Yes

Identification No No. Visual ID

Lecture Passive Yes

Talk-show Passive Yes

Audio-conference Active No. Auditory ID

Video-conference Active No. Audio and visual

Face-to-face Active No. Audio and visual

Also see Cristina Bicchieri & Azi Lev-On. 2007. «Computer-mediated communication andcooperation in social dilemmas: an experimental analysis» Politics, Philosophy & Economics. 6(2):139-168

Brosig results

Brosig results

% Change (rounds 1-5 – rounds 6-10)

Heterogeneity

Developing agreements is more difficult with heterogeneous appropriators All will be better off by cooperating, but some

benefit more May fail to cooperate if they cannot agree on a

“fair” distribution of benefits

Hackett, Schlager, Walker 2 levels of endowments 2 x 10-round stages (without/with communication) Without – converge towards Nash With – converge towards cooperative equilibrium

Also papers by Cardenas

Sanctioning experiments

Public goods setting Yamagishi 1986 Popularized by Fehr Gächter 2002

CPR context Ostrom Gardner Walker 1992

See Guala BBS 2012 for critique and open commentary

Ostrom Gardner WalkerAPSR 1992

2 x 10-round stages

Stage 1: baseline

Stage 2: costly punishment Pay $0.05 to $0.20 to impose fines ranging from

$0.10 to $0.80

Results Non-zero levels of sanctioning Directed towards high harvesters Higher levels of cooperation But lower net earnings due to punishment

Fehr-Gächter results

Fehr-Gächter results

Cooperators do get

sanctioned

Mean ContributionsPunishment is pervasive but it does not always increase contributions

Success: Boston, Nottingham, Copenhagen, Bonn, Zurich, St. Gallen, Minsk, Seoul, Chengdu, Melbourne

Failure: Dnipropetrovs'k, Samara, Athens, Istanbul, Riyadh, Muscat

No Punish With Punish

Anti-social punishment

The failure of punishment to increase cooperation is related to amount of “anti-social punishment”

Possible motives for anti-social punishment

Revenge

Induce person to contribute more

Preferences: People with a strong taste for dominance, a competitive

personality, or a desire to maximize relative payoffs might not only punish freeloaders but also cooperators

Dislike for do-gooders, don’t want to be “shown up”

Other sanctioning results

When able to punish back, cooperation decreases (Cinyabuguma, et al 2006; Denant-Boemont, et al 2007; Nikiforakis 2008)

When people can move between groups, they tend to choose the group with sanctioning (Gurek et al 2006)

Initially, most chose without-sanctions But the with-sanctions group did better By end, most chose with-sanctions

Cooperation near 100% and few sanctions needed

Some other studiesMasclet & Noussair

Nonmonetary sanctions Both monetary & non-monetary sanctions can increase initial

cooperation Effectiveness of non-monetary sanctions decays

de Quervain et al. (2004) and Singer et al. (2006) Neural studies—people get pleasure from punishing others

Carpenter (JEBO, 2006) Varied cost of punishing every 3 rounds. Punishment is an ordinary, inferior good (demand decreases as

income increases). Inelastic with respect to both income and price

Also see other work of Jeff Carpenter & Peter Matthews

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Sanctioning exps not without its critics

Fehr & Gächter ascribe motivation as “altruistic punishment.” But…Is it altruism? Or revenge?

Guala BBS No evidence that cooperation is enforced with costly

punishment in small-scale egalitarian societies Challenges concept of strong reciprocity

Strange response from Gintis & Fehr You do not observe costly sanctioning “in the wild”

because it works. The mere threat yields compliance.