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Travellers dilemma (Ariel Rubenstein 2004)
Imagine you are one of the players in the following two-player game:
Each of the players chooses an amount between $180 and $300
Both players are paid the lower of the two chosen amounts
Five dollars are transferred from the player who chose the larger amount to the player who chose the smaller one.
In the case that both players choose the same amount, they both receive that amount and no transfer is made.
How much would you choose?
www.csiro.au
Ex ante testing of carbon trading policies in the SA Murray Darling Basin
John Ward, Brett Bryan, Darran King, Neville Crossman
June 2007
Context The SA region of the Murray Darling Basin has seen over 80 years of land clearance and
agricultural production
Prominent signs of environmental degradation – Surface and ground Water, Water quality, Land, Biota
Government policy - Integrated Natural Resource Management
INRM plan based on resource condition targets and actions
SA MDB Integrated NRM targets are multi-objective and include:
• Biodiversity
• River Salinity
• Wind Erosion
Establish on-ground investment priorities for NRM actions on
private land
Evaluate the potential of market based Instruments
Research programme: calibrating multi-agent models for policy optimisation in the SA MDB
1. Identify and evaluate market based incentives to encourage revegetation
2. At the farm scale, estimate the economic viability and contribution to resource targets of biomass energy and carbon trading
3. Survey dryland farmers to elicit farming styles and describe relationships between current community attitudes and land management actions.
4. Use experimental economics to quantify behavioural responses by landholders to market incentives in revegetation decision environments
5. Use the survey and experimental data to calibrate a multi-agent dynamic simulation of revegetation actions over fifty years
6. Implement four simulation scenarios of revegetation policy which estimate carbon, natural resource and economic outcomes
7. Describe the relationships between policy variables and NRM and economic outcomes to inform policy making processes prior to implementation.
Economic Viability Carbon
Mallee community - €10 / tonne
Mallee community - €20 / tonne
Mallee community - €30 / tonne
Mallee community - €40 / tonne
Viable areas - €10 / tonne
Viable areas - €20 / tonne
Viable areas - €30 / tonne
Viable areas - €40 / tonne
One € = A$1.62
Economic Viability of Carbon
MALLEE COMMUNITY
Carbon Price (€/tonne)
10 20 30 40
Economic value Total NPV of viable areas ($)
0 12,466,048 337,643,473 1,113,873,635
EAE of viable areas ($/ha) mean (min, max)
0.0 (0.0-0.0)
7.54 (0.0-64.28)
30.77 (0.0-132.13
41.13 0.0-199.98)
Carbon sequestration
Viable total carbon production (tonnes/yr)
0 356,616 1,849,795 3,578,201
Biodiversity Total area of revegetation for biodiversity (ha)
0 115,793 768,933 1,897,763
Salinity Total salinity reduction (EC)
0.0 0.03 1.64 2.77
Wind erosion Total area of stabilised soils with high wind erosion potential (ha)
0 2,051 32,258 230,431
The quest for a behavioural epsilon:which version of “rational behaviour” to model?
Game theory: traveller's dilemma
0
1
2
3
4
5
6
7
ranges
Fre
qu
ency
Individual
Individual 3 5 2 0 1 6
180 181-294 295 296-298 299 300
H.economicus
H.reciprocans
H.psychologicus
Chi squared test of experimental cluster frequencies cf with survey sample= 0.659 (not sig dif α =0.05)
cluster 1
-1.6
-1.1
-0.6
-0.1
0.4
0.9
profit motivated
Innovators
PC Capital constrained
Environmental attitudeTradition
Time PC time available
social influence on decisons
cluster 2
-1.6
-1.1
-0.6
-0.1
0.4
0.9
profit motivated
Innovators
PC Capital constrained
Environmental attitudeTradition
Time PC time available
social influence on decisons
cluster 3
-1.6
-1.1
-0.6
-0.1
0.4
0.9
profit motivated
Innovators
PC Capital constrained
Environmental attitudeTradition
Time PC time available
social influence on decisons
cluster 4
-1.6
-1.1
-0.6
-0.1
0.4
0.9
profit motivated
Innovators
PC Capital constrained
Environmental attitudeTradition
Time PC time available
social influence on decisons
Frequency %
1 297 51.9
2 144 25.2
3 68 10.1
4 84 12.8
Total 593 100.0
Principle components factor analysis and hierarchical cluster analysis
socially influenced farmers innovative farm business managers
life style hobby farmers time and capital constrained conservation managers
Cluster spatial (centroid) distribution
RBi = Atti + Ii + Sni + PCi + Oppi + wBj
Where for land holder i:
RB: represents current revegetation behaviour
Atti: represents vector of attitudes
Ii: represents intended reveg action
Sni: represents influence of social norms on i decision making
PCi: represents a vector of perceived controls
Oppi: represents current opportunity cost
wj: represents decayed weighted influence of nearest neighbour j for behaviour and
w = 1/distance i-j
Experimental design and metrics
Carbon market treatments
Numerical decision information only
No visual cue
Decision information
Visual cue (map of all farm decisions)
Waikerie 1 session (10 periods)
1 session 1 session
Murray Bridge 1 session 1 session 1 session
Typical experimental farm
Experimental decision Income /10 ha
carbon t/10ha
optimal $/10 ha @ $50 /t carbon
marginal change in income
marginal change in carbon
marginal value carbon $/t
traditional 1 1156 0 1156 0 0
biofuels 2 2063 0 2063 -907 0
biomass 3 771 7 1130 386 7 54
trad + native veg 4 578 15 1334 578 15 38
native veg 5 0 30 1511 1156 30 38
Experimental metricsIndividual and aggregate carbon productionIndividual and aggregate income: Player paymentsDecision makingMarket behaviour
Carbon trading experimental sessions
Farm decision making: visual cue (map) of all catchment decisions
Experimental results
0
10
20
30
40
50
60
70
80
90
de
cs
ion
fre
qu
en
cy
MB no map
MB map
WA no map
WA map
MB no map 0 22 14 17 57
MB map 0 12 13 8 77
WA no map 2 29 14 17 58
WA map 1 22 8 12 77
Decision 1 Decision 2 Decision 3 Decision 4 Decision 5
WA no info
0
1
2
3
4
5
6
7
8
9
1 2 3 4 5 6 7 8 9 10
period
Dec
isio
n f
req
uen
cy Decision 1
Decision 2
Decision 3
Decision 4
Decision 5
WA map
0
1
2
3
4
5
6
7
8
9
10
1 2 3 4 5 6 7 8 9 10
period
dec
isio
n f
req
uen
cy Decision 1
Decision 2
Decision 3
Decision 4
Decision 5
no map map increase no map map increaseWaikerie 3629 4442 22% 999 1011 1%Murray Bridge 3543 4349 23% 822 1048 27%
Carbon (tonnes) Income ($)
Dynamic simulations of SA MDB revegetation
Four farm scale decision making scenarios
Where an individual agent selects one cleared ha per annum to revegetate for a period of 50 years
Random
Lowest opportunity cost to highest
Highest biodiversity value to lowest
According to social diffusion.
If neighbour revegetates, then agent revegetates (influence is a decaying distance function)
assumes 5% are innovators and the probability of revegetation for all agents increases with time.
Dynamic decision outcomes: 50 years
Bringing empirically based behavioural data into NRM policy testing
1. Calibrate the social diffusion model based on empirical data
Higher initial levels of innovation (31% not 5% as previously assumed)
Quantify policy that includes dissemination of catchment wide decisions
Quantify variable learning capacities, responses and transaction costs of novel choices
Complement pre-existing norms and institutions
2. Effect on policy performance by targeting observed farming segments
Enumerate the effects of policy that matches the motivations of cluster segments: attitudinal and temporal sequencing
3. Ex ante modelling of policies that address the likely effects of global warming: addressing regional vulnerability and resilience
Waikerie carbon trading
Waikerie Session 124 no info Waikerie Session 127 Mapperiod 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 NN 1/distance period 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 Cluster
player 1 4 4 5 2 5 4 5 5 5 5 player 1 5 2 5 5 4 5 2 2 5 5 23 3 2 4 3 3 5 5 5 5 8 0.2500 5 5 5 5 5 5 5 5 5 5
player 2 5 5 2 4 2 5 2 2 2 2 player 2 2 2 2 2 2 2 2 5 2 2 44 5 5 2 5 2 5 2 2 5 3 0.1720 2 2 2 2 2 5 2 5 2 5
player 3 4 5 5 2 5 2 5 2 2 5 player 3 2 2 2 2 2 5 2 5 2 5 25 5 2 4 2 5 2 2 2 2 2 0.1720 2 2 2 2 2 2 2 5 2 2
player 4 5 5 5 5 5 5 5 5 5 5 player 4 5 5 5 5 5 5 5 5 5 5 25 5 5 5 5 5 5 5 5 5 5 0.5000 5 5 5 5 5 5 5 5 5 5
player 5 5 5 5 5 5 5 5 5 5 5 player 5 5 5 5 5 5 5 5 5 5 5 15 5 5 5 5 5 5 5 5 5 4 0.5000 5 5 5 5 5 5 5 5 5 5
player 6 2 2 2 2 2 2 2 2 2 2 player 6 5 3 3 3 3 3 3 3 2 25 5 5 5 5 5 5 5 5 5 4 0.2000 5 5 5 5 5 5 5 5 5 5
player 7 5 2 5 5 2 5 4 2 5 5 player 7 5 5 5 5 5 5 5 5 5 5 33 4 5 4 4 4 4 4 5 4 10 0.1561 4 4 2 4 4 4 4 4 4 4
player 8 3 3 2 4 3 3 5 5 5 5 player 8 5 5 5 5 5 5 5 5 5 54 3 3 3 2 3 5 5 5 2 9 0.3162 5 5 5 5 5 5 5 5 5 5
player 9 4 3 3 3 2 3 5 5 5 2 player 9 5 5 5 5 5 5 5 5 5 5 23 3 2 4 3 3 5 5 5 5 8 0.3162 5 5 5 5 5 5 5 5 5 5
player 10 3 4 5 4 4 4 4 4 5 4 player 10 4 4 2 4 4 4 4 4 4 4 35 2 5 5 2 5 4 2 5 5 7 0.1562 5 5 5 5 5 5 5 5 5 5
player 11 5 5 5 3 2 2 5 5 5 5 player 11 5 5 5 5 5 5 5 5 5 5 14 4 5 2 5 4 5 5 5 5 1 0.1644 5 2 5 5 4 5 2 2 5 5
player 12 3 5 3 5 1 4 3 3 1 4 player 12 5 5 4 1 5 5 3 4 5 5 13 4 5 4 4 4 4 4 5 4 10 0.1170 4 4 2 4 4 4 4 4 4 4
Murray Bridge carbon trading
Murray Bridge Session 130 no info Murray Bridge Session 132 Mapperiod 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 NN period 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 Cluster
player 1 4 4 5 5 5 5 5 5 5 5 player 1 5 5 5 5 5 5 5 5 5 5 15 5 5 5 3 5 5 5 5 5 8 0.2500 5 5 5 5 5 5 5 5 5 5
player 2 5 4 5 2 2 5 5 5 5 5 player 2 5 5 5 5 5 5 5 5 5 5 15 4 2 5 5 5 2 5 5 5 3 0.1720 5 5 5 5 5 5 5 5 5 5
player 3 5 4 2 5 5 5 2 5 5 5 player 3 5 5 5 5 5 5 5 5 5 5 45 4 5 2 2 5 5 5 5 5 2 0.1720 5 5 5 5 5 5 5 5 5 5
player 4 2 3 5 5 2 2 3 3 2 5 player 4 3 4 3 3 5 5 5 5 5 5 13 2 4 4 3 2 4 2 2 3 9 0.2231 3 4 5 4 3 5 4 3 5 5
player 5 player 54 0.5000
player 6 3 4 5 5 3 2 3 4 3 4 player 6 3 2 3 4 5 2 3 3 5 5 12 3 5 5 2 2 3 3 2 5 4 0.2000 3 4 3 3 5 5 5 5 5 5
player 7 5 5 5 5 5 5 5 5 5 5 player 7 5 3 5 5 5 5 5 2 2 23 2 5 3 4 4 4 2 2 4 10 0.1561 4 5 5 5 5 5 5 5 5 5
player 8 5 5 5 5 3 5 5 5 5 5 player 8 5 5 5 5 5 5 5 5 5 5 13 2 4 4 3 2 4 2 2 3 9 0.3162 3 4 5 4 3 5 4 3 5 5
player 9 3 2 4 4 3 2 4 2 2 3 player 9 3 4 5 4 3 5 4 3 5 5 25 5 5 5 3 5 5 5 5 5 8 0.3162 5 5 5 5 5 5 5 5 5 5
player 10 3 2 5 3 4 4 4 2 2 4 player 10 4 5 5 5 5 5 5 5 5 5 15 5 5 5 5 5 5 5 5 5 7 0.1562 5 3 5 5 5 5 5 2 2 2
player 11 2 4 5 3 2 5 4 5 2 5 player 11 2 5 4 2 3 5 2 5 4 3 14 4 5 5 5 5 5 5 5 5 1 0.1644 5 5 5 5 5 5 5 5 5 5
player 12 4 5 5 5 2 5 5 2 5 2 player 12 5 2 5 5 5 2 5 2 5 23 2 5 3 4 4 4 2 2 4 10 0.1170 4 5 5 5 5 5 5 5 5 5
Total recharge results
a a ac d cd e e
Dunnett’s T3 post hoc test: Homogeneity of variance (Levine statistic) p < 0.05; ANOVA coefficients: F (7, 142) = 98.600; p< 0.05; Treatment means with the same letter were not statistically different at =0.05