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Fixed Instruments to Cope with Stock Externalities An Experimental Evaluation

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Author Info
Gastón Giordana (LAMETA, Université Montpellier I)
Marc Willinger (LAMETA, Université Montpellier I)

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Abstract

We evaluate the effectiveness of non optimal and temporally inconsistent incentive policies for regulating the exploitation of a renewable common-pool resource. The corresponding game is an N-person discrete-time deterministic dynamic game of T periods fixed duration. Three policy instruments with parameters that remain constant for the whole horizon are evaluated: a pigouvian tax (flat tax), an ambient tax (ambient flat tax) and an instrument combining the two previous ones (mixed flat instrument). We test in the lab the predictions of the model solved for 3 distinct behavioural assumptions: (a) sub-game perfection, (b) myopic behaviour, and (c) joint payoff maximization. We find that subjects behave myopically in the unregulated situation, which agrees with previous results in the literature. Conditional on predictions, the mixed flat instrument and the flat tax are the most effective policies in approaching the optimum extraction path. However, in absolute terms the ambient flat tax and the mixed flat instrument curb most significantly the mean extraction path towards the optimum path. Paradoxically, these instruments are the less efficient ones.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.72.

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Date of creation: Jul 2007
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Handle: RePEc:fem:femwpa:2007.72

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Related research
Keywords: Policy Instruments; Renewable Common-pool Resources; Dynamic Externalities; Experimental Economics;

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Find related papers by JEL classification:
D9 - Microeconomics - - Intertemporal Choice and Growth
D62 - Microeconomics - - Welfare Economics - - - Externalities
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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  9. Provencher Bill & Burt Oscar, 1993. "The Externalities Associated with the Common Property Exploitation of Groundwater," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 139-158, March. [Downloadable!] (restricted)
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  1. Gastón A. Giordana, 2008. "Wealthy people do better? Experimental Evidence on Endogenous Time Preference Heterogeneity and the Effect of Wealth in Renewable Common-Pool Resources Exploitation," Working Papers 08-10, LAMETA, Universtiy of Montpellier, revised Jul 2008. [Downloadable!]
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