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Can Rationing Rules for Common Resources Impact Self-insurance Decisions?

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  • Lefebvre, Marianne

Abstract

When users have ex-ante demands over a common resource and when resource size is not sufficient to cover all the individual demands, there is a need to establish a rationing rule. I test whether the choice of the rationing rule impacts the individual decision to self-insure, i.e., to invest in a secure alternative resource, instead of relying on a free but uncertain common resource. Four rationing rules, empirically relevant for water management, are compared using a laboratory experiment. According to Nash predictions, the investment in self-insurance is the same with the four rules. However, the experimental data show that agents' decisions are impacted by the rule. Coordination on the optimal self-insurance level is higher with the no allocation rule. However, total gains are higher with the constrained-equal awards rule, and their variability is reduced. Rules which are defined as a proportion of posted demands, such as the proportional and constrained-equal losses rules, induce sub-optimal levels of self-insurance.

Suggested Citation

  • Lefebvre, Marianne, 2013. "Can Rationing Rules for Common Resources Impact Self-insurance Decisions?," Strategic Behavior and the Environment, now publishers, vol. 3(3), pages 185-222, March.
    • Handle: RePEc:now:jnlsbe:102.00000029
    DOI: 10.1561/102.00000029
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    Cited by:

    1. Benjamin Ouvrard & Stefan Ambec & Arnaud Reynaud & Stéphane Cezera & Murudaiah Shivamurthy, 2022. "Sharing rules for a common-pool resource in a lab experiment," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 59(3), pages 605-635, October.
    2. Thomson, William, 2015. "Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: An update," Mathematical Social Sciences, Elsevier, vol. 74(C), pages 41-59.
    3. Luba Petersen & Guidon Fenig, 2015. "Distributing scarce jobs and output: Experimental evidence on the effects of rationing," Discussion Papers dp15-02, Department of Economics, Simon Fraser University.
    4. Guidon Fenig & Luba Petersen, 2017. "Distributing scarce jobs and output: experimental evidence on the dynamic effects of rationing," Experimental Economics, Springer;Economic Science Association, vol. 20(3), pages 707-735, September.

    More about this item

    Keywords

    Bankruptcy; Common-pool resource; Coordination; Experiment; Risk aversion; Self-insurance; Rationing rules; Water management;
    All these keywords.

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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