Experimental Insights on Forest Management Under an Exogenous Income Shock

Negative income shocks may increase households' reliance on common-pool resources and thereby undermine sustainable resource management. We study this in a preregistered laboratory experiment with 120 participants playing a dynamic resource extraction game framed around a community forest. Participants in the Control condition play the baseline game three times, whereas participants in the Shock condition experience a temporary loss of exogenous income in the second part before income is restored in the third. This design allows us to distinguish responses to the income shock from common changes associated with repeated play and to observe behavior after the shock ends. We find that forest extraction increases in Part 2 for the Shock treatment relative to the ongoing baseline in the Control condition. After income is restored in Part 3, extraction decreases and the forest partially recovers. However, the equivalence tests do not clearly show whether behavior fully returns to its pre-shock level or whether some of the shock effect remains. Our findings support previous evidence that economic hardship can increase pressure on shared natural resources.