Resource degradation and ecosystem services in common pool resources

The literature on common-pool resources has traditionally focused on the relevance of negative production externalities in appropriation that lead to inefficient use of the commons. Focusing on production externalities alone, the literature has largely neglected the relevance of ecosystem services provided by the resource. These services constitute a public good, diminished in value through negative conservation externalities that occur with over appropriation. This project proposal extends the previous literature by explicitly examining the relevance of conservation externalities on behavior. The proposed research will be conducted in two game settings: i) a linear appropriation game in which only conservation externalities occur, and ii) a novel, more general, game that includes production and conservation externalities. The research treatments are designed to systematically investigate the behavioral responses to endogenous probabilistic degradation of the commons from over appropriation and the introduction of institutions that allow for voluntary payments for conservation of ecosystem services. The former set of treatments extends previous literature by examining responses to alternative parameterizations for probabilistic degradation of the commons, including catastrophic outcomes. More specifically, the research design calls for examining behavioral responses to manipulations in: i) the intensity of the level of degradation, ii) the probability that endogenous degradation occurs and iii) the existence of a threshold for safe yield above which the resource faces probabilistic destruction. The behavioral question is essentially the response to trade-offs between private benefits from appropriation and the loss of economic rents that arise from probabilistic degradation of the commons. The second set of treatments introduces endogenous interaction between two types of groups; direct users of the commons who are affected from appropriation and conservation externalities and outsiders who are affected only from conservation externalities. These treatments allow for "pay for ecosystem services" contracts where outsiders have the opportunity to mediate appropriation through voluntary contributions to direct users. Three treatment conditions will be analyzed linking voluntary payments to conservation: a) perfect contracts, b) contracts with exogenous uncertainty, and c) perfect contracts with endogenous uncertainty. In these settings, outsiders face payoff incentives to contribute to conservation of the resource, while also facing incentives to free ride on others contributions to conservation. The behavioral questions are to what extent outsiders use the opportunity to make voluntary contributions to direct users, and to what extent do direct users respond in terms of their appropriation decisions. In sum, findings of this project will add importantly to the literature on the commons by analyzing appropriation decisions in novel settings. More broadly, the research contributes to our understanding of the influence of ecosystem services on behavior and the wellbeing of societies in developed and developing countries, complementing field empirical studies on the value of ecosystem services (e.g. Millennium Ecosystem Assessment).

This project focuses on two main topics related to the conservation of natural resources, namely responses to threats of ecosystem collapse and the potential for subsidies from individuals to enhance conservation outcomes by natural resource users. First, it generates new evidence about settings capturing that the use of natural resources can entail a threat of ecosystem collapse. Results show different behavior by different individuals. While some individuals will be willing to make necessary sacrifices by limiting their use (despite forgone earnings), others might perceive the collapse as a certain fact and are thus unwilling to limit their use, leading to a race-to-the-bottom. Which of these behaviors individuals engage in is influenced by their beliefs about what other will do. Pessimists about others' behavior use more of the resource. Indeed, we show that pessimists are overly pessimistic. Therefore, policies providing accurate information about the behavior of others could improve conservation outcomes. Moreover, we show that when individuals can privately protect against such degradation of resources (with adaptation strategies, for example) they become less cooperative in mitigating the potential damage. Thus, policies supporting private protection, such as adaptation to climate change, should carefully consider their unintended implications, indirectly decreasing people's cooperation efforts towards conservation of resources. Second, the research develops a new method to study decision-making as related to payments for ecosystem services. We consider a setting where a sub-group of individuals can make conservation efforts that benefit them (viewed as ecosystem service providers), and also benefit a second sub-group of individuals that cannot make conservation decisions (viewed as a general population). The second sub-group can however subsidize the efforts of those who can influence conservation. The results point to the limits of such subsidies in increasing conservation when individual monitoring of ecosystem service providers is not feasible. Neither of two subsidies under consideration (donations and conditional payments on aggregate conservation) do better than situations where subsidies are not present. This supports the importance of further research into how institutions, monitoring capacity, and monetary incentives interact in promoting the success of payments for ecosystem services. In addition, we modeled the relevance of institutions to monitor and certify firm behavior when production can generate negative externalities (such as environmental pollution) and firms can fraudulently market their products as conservation friendly. The subsidy in this setting is the higher price for products that consumers might want to pay so that firms produce greener. The results suggest that markets where certification is widespread are not necessarily those where production is greener, because certification is primarily needed in contexts where fraud is prevalent. Overall, this project contributes to the cumulative understanding of the complex interrelation between institutions, incentives and conservation of natural resources.