Commons as a risk-management tool: theoretical predictions and an experimental test
AbstractThe impact of the safety-net use of Common-pool resources (CPR) on the individual investment into and extraction from the commons is analyzed in this paper. Agents of the community first choose to invest in their private project and in the CPR; second, they choose how much to extract from their private project and the commons. The model compares two types of risk management tool: CPR as risk-coping and risk-diversification mechanisms. It also compares two types of risk: risk on a private project and risk on CPR investment by other community members. The theoretical predictions are empirically tested with experimental economics. In this view, we propose an original CPR game composed of two periods, an investment one and an extraction one. Our result clearly shows that risk reduction in the private project unambiguously decreases investment in the CPR, while it does not impact CPR extraction. We also show that a risk-coping strategy is well understood as more flexible and influenced by the outcome in terms of private project yield.
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Bibliographic InfoPaper provided by Laboratoire d'Economie Forestiere, AgroParisTech-INRA in its series Working Papers - Cahiers du LEF with number 2014-06.
Length: 28 pages
Date of creation: Apr 2014
Date of revision: Apr 2014
Common-pool resource; Common-pool resource game; deforestation; experimental economics.;
Find related papers by JEL classification:
- Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
- Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-AGR-2014-06-28 (Agricultural Economics)
- NEP-ALL-2014-06-28 (All new papers)
- NEP-EXP-2014-06-28 (Experimental Economics)
- NEP-PPM-2014-06-28 (Project, Program & Portfolio Management)
- NEP-RMG-2014-06-28 (Risk Management)
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