Impact of Risk and Uncertainty in the Provision of Local and Global Environmental Goods : An Experimental Analysis
Uncertainties 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.
|Date of creation:||2005|
|Contact details of provider:|| Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia|
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://fbe.unimelb.edu.au/economics
More information through EDIRC
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.:
- Groves, Theodore & Ledyard, John O, 1977.
"Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem,"
Econometric Society, vol. 45(4), pages 783-809, May.
- Theodore Groves & John Ledyard, 1976. "Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem'," Discussion Papers 144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jennifer Zelmer, 2003. "Linear Public Goods Experiments: A Meta-Analysis," Experimental Economics, Springer;Economic Science Association, vol. 6(3), pages 299-310, November.
- 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. Mark Isaac & James M. Walker, 1988. "Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 179-199.
- 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.
- Groves, Theodore & Ledyard, John O., 1978.
"The Existence of Efficient and Incentive Compatible Equilibria with Public Goods,"
203, California Institute of Technology, Division of the Humanities and Social Sciences.
- Groves, Theodore & Ledyard, John O, 1980. "The Existence of Efficient and Incentive Compatible Equilibria with Public Goods," Econometrica, Econometric Society, vol. 48(6), pages 1487-1506, 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.
- 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.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
- 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.
- 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.
- 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.
- R. Isaac & David Schmidtz & James Walker, 1989. "The assurance problem in a laboratory market," Public Choice, Springer, vol. 62(3), pages 217-236, September.
When requesting a correction, please mention this item's handle: RePEc:mlb:wpaper:956. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katherine Perez)
If references are entirely missing, you can add them using this form.