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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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:
Contact details of provider:
Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
Phone: +61 3 8344 5289
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Isaac, R Mark & Walker, James M, 1988.
"Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism,"
The Quarterly Journal of Economics,
MIT Press, vol. 103(1), pages 179-99, February.
- R. M. Isaac & J. M. Walker, 2010. "Group size effects in public goods provision: The voluntary contribution mechanism," Levine's Working Paper Archive 310, David K. Levine.
- R. Isaac & James Walker & Susan Thomas, 1984. "Divergent evidence on free riding: An experimental examination of possible explanations," Public Choice, Springer, vol. 43(2), pages 113-149, January.
- Theodore Groves & John Ledyard, 1976.
"Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem',"
144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
- Isaac, R. Mark & Walker, James M. & Williams, Arlington W., 1994. "Group size and the voluntary provision of public goods : Experimental evidence utilizing large groups," Journal of Public Economics, Elsevier, vol. 54(1), pages 1-36, May.
- Jennifer Zelmer, 2003. "Linear Public Goods Experiments: A Meta-Analysis," Experimental Economics, Springer, vol. 6(3), pages 299-310, November.
- Groves, Theodore & Ledyard, John O, 1980.
"The Existence of Efficient and Incentive Compatible Equilibria with Public Goods,"
Econometric Society, vol. 48(6), pages 1487-1506, September.
- Groves, Theodore & Ledyard, John O., 1978. "The Existence of Efficient and Incentive Compatible Equilibria with Public Goods," Working Papers 203, California Institute of Technology, Division of the Humanities and Social Sciences.
- Dickinson, David L., 1998. "The voluntary contributions mechanism with uncertain group payoffs," Journal of Economic Behavior & Organization, Elsevier, vol. 35(4), pages 517-533, May.
- Loehman, Edna & Quesnel, Fabrice N & Babb, Emerson M, 1996. " Free-Rider Effects in Rent-Seeking Groups Competing for Public Goods," Public Choice, Springer, vol. 86(1-2), pages 35-61, January.
- Brown, Paul M. & Stewart, Steven, 1999. "Avoiding severe environmental consequences: evidence on the role of loss avoidance and risk attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 179-198, February.
- R. Isaac & David Schmidtz & James Walker, 1989. "The assurance problem in a laboratory market," Public Choice, Springer, vol. 62(3), pages 217-236, September.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Veronika Nemes & Lata Gangadharan, 2011. "The Implications of Risk and Uncertainty Aversion in Public Goods Games," Environmental Economics Research Hub Research Reports 10107, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marisa Cerantola).
If references are entirely missing, you can add them using this form.