Impact of Risk and Uncertainty in the Provision of Local and Global Environmental Goods : An Experimental Analysis
AbstractUncertainties and risks in the decision making process are abundant in the area of environmental economics, irrespective of whether the problems being discussed are local or global. This paper uses laboratory evidence from public goods games to examine how in payoff equivalent situations, decision makers contribute towards local or global environmental goods, in the presence of risk and uncertainties in the provision of these goods. We use a within subject design that allows for comparisons across seven different treatments in which subjects are exposed to internal (strategic) and external (environmental) risk and uncertainty. Our results show that the location of the risk and uncertainty matters, with subjects moving away from the external uncertainty in favor of internal uncertainty, when that uncertainty is associated with the local environmental good. When the uncertainty relates to the global environmental good, subjects face both external and internal uncertainty on the same good leading to a significant drop in contributions. We find that in the presence of risk and uncertainty subjects use feedback from other members of their group when deciding about future contributions. The reward for research and development and innovation is captured in the experimental design by the increased probability of obtaining the desired outcome in the endogenous probability treatment. Subjects seem to understand this incentive and contribute more towards global goods in this treatment.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 956.
Length: 36 pages
Date of creation: 2005
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
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More information through EDIRC
Experiments; Public Goods; Local and Global Environmental Problems; Risk; Uncertainty.;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-EXP-2006-03-18 (Experimental Economics)
- NEP-PBE-2006-03-18 (Public Economics)
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