Environment and People Zichao Yu Institutions
E183 Environment and People Zichao Yu
Institutions
Sep/26/2019
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Today’s Topics
“Harvest the Commons Game” – Reflections
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“Harvest the Commons Game” – Reflections
My goal was to design a game with rules under which
Individuals have an incentive to compete and pursue self interest.
Individuals will be better off if everybody cooperates than if everybody only works for him/herself.
Communication and cooperation can lead to greater collective gain and better outcomes for everyone.
Factors that complicate collective action
Number of stakeholders
Understanding of rules and payoffs
Communication and trust (strategic behavior, weak coalition)
Incentive structure (gaming the system? changing the rules?)
Individual Incentive vs Collective Gain
Individual incentive
Individuals act to maximize their own gain, most often based on anticipation of other people’s actions.
When impaired by lack of communication and/or trust, such choices are often suboptimal, though still rational.
Collective gain
With adequate communication and trust, a group of individuals can make a joint decision and reap benefits for the group – a collective gain.
Such collective gain can often be greater than the sum of benefits realized through individualized decisions.
Today’s Topics
Prisoner’s Dilemma
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The Prisoner’s Dilemma
Two people together committed a crime and got caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see payoff table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Allegory
The simplest human-interactive strategic game that displays the collective action problem.
Familiar with the story, terminologies, concepts.
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The Prisoner’s Dilemma
Two people together committed a crime and get caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
The Prisoner’s Dilemma
Two people together committed a crime and get caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
The Prisoner’s Dilemma
Two people together committed a crime and get caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
The Prisoner’s Dilemma
Two people together committed a crime and get caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
The Prisoner’s Dilemma
Two people together committed a crime and get caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
“Dominant Strategy” for Suspect 1: Testify
The Prisoner’s Dilemma
Two people together committed a crime and get caught by the police.
The police have enough evidence to put each in jail for 1 year, but they want to investigate more.
Interrogation is conducted separately, not allowing the suspects to communicate with each other.
Each suspect can either testify against the other or deny the crime. They are informed of the potential outcomes (see table below) given their own choice and the choice of the other.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
“Equalibrium Outcome” of the Game
Today’s Topics
Game Theory
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Game Theory
Definition: A form of applied mathematics used to model and predict people’s behavior in strategic situations where people’s choices are predicated on predicting the behavior of others.
John Forbes Nash, 1994 Nobel Prize in Economic Sciences.
Game Theory
Payoffs – people’s gain/loss given their own and others’ choices.
Strategies – people’s choices.
Dominant strategy – a choice that always maximizes individual gain regardless of other players’ choices.
Nash Equilibrium – a stable outcome in a game when no player can benefit by changing strategies while the other players keep theirs unchanged.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Today’s Topics
The Tragedy of the Commons
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The Tragedy of the Commons
The Pasture Example, told by Garret Hardin, is a frequently cited, stylized example of mismanagement of common resources.
Everyone has access to a commonly held pasture.
No rules about sustainable level of grazing.
Everyone gains a net benefit by adding more cows to the pasture.
The Tragedy of the Commons
The Pasture Example, told by Garret Hardin, is a frequently cited, stylized example of mismanagement of common resources.
Everyone has access to a commonly held pasture.
No rules about sustainable level of grazing.
Everyone gains a net benefit by adding more cows to the pasture.
The Tragedy of the Commons
The Tragedy of the Commons
The Pasture Example, told by Garret Hardin, is a frequently cited, stylized example of mismanagement of common resources.
Everyone has access to a commonly held pasture.
No rules about sustainable level of grazing.
Everyone gains a net benefit by adding more cows to the pasture.
Consequence is the pasture being overgrazed and destroyed.
How to avoid this tragedy?
The Tragedy of the Commons
Garret Hardin’s ideas
Conscience and goodwill are flimsy and unreliable. Eventually people will act in their own interest.
Two solutions are possible, theoretically.
The first is establishing state control of the commons. Decisions are made authoritatively.
Benevolent dictatorship? Who’s keeping the powerful accountable?
The second is privatization. because private owners carry the consequences of their own decisions, good or bad. They are thus incentivized to manage their property sustainably. This is the Coase Solution!
Hardin himself prefers privatization.
The Tragedy of the Commons
Either state control or privatization involve some form of enclosure, where an “open access” resource is bounded and given over to control either by private owners or by a strong and coercive state management body.
Nature in most of its forms (fisheries, oil fields, climate systems, etc.) are commons – those difficult-to-enclose systems that invite free-riding and defection.
Hardin’s view is widely adopted – Solutions to many environmental problems often take the form of an environmental super-police state, or private property rights over environmental objects.
Today’s Topics
Hardin’s Approach in Real Life
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Preventing the Tragedy
Hardin’s Approaches
State control of the commons. E.g. coal mining on federal land.
The Bureau of Land Management (under the Department of Interior) manages about 570 million acres of Federal mineral estate with coal development potential.
Preventing the Tragedy
Hardin’s Approaches
Privatization. E.g. oil and gas extraction on private lands.
The U.S. is one of only a few countries in the world that allow private individuals to own the minerals under their land.
Today’s Topics
An Alternative to Hardin?
An institutional approach – alter the incentive structure to make cooperation more appealing.
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Overcoming The Prisoner’s Dilemma
Institutions: Rules and norms governing collective action, especially referring to those governing common property environmental resources.
Individuals cooperate because they believe others will also act in favor of collective good. This is the essential form of collection action.
Overcoming The Prisoner’s Dilemma
In anticipation of the dilemma, the two suspects have come to an agreement prior to the crime.
If they ever get caught, whoever walks out free will compensate the other’s family by $1 million.
This agreement is enforced by a crime gang the two are associated with.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Overcoming The Prisoner’s Dilemma
In anticipation of the dilemma, the two suspects have come to an agreement prior to the crime.
If they ever get caught, whoever walks out free will compensate the other’s family by $1 million.
This agreement is enforced by a crime gang the two are associated with.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Overcoming The Prisoner’s Dilemma
In anticipation of the dilemma, the two suspects have come to an agreement prior to the crime.
If they ever get caught, whoever walks out free will compensate the other’s family by $1 million.
This agreement is enforced by a crime gang the two are associated with.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Overcoming The Prisoner’s Dilemma
In anticipation of the dilemma, the two suspects have come to an agreement prior to the crime.
If they ever get caught, whoever walks out free will compensate the other’s family by $1 million.
This agreement is enforced by a crime gang the two are associated with.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Overcoming The Prisoner’s Dilemma
In anticipation of the dilemma, the two suspects have come to an agreement prior to the crime.
If they ever get caught, whoever walks out free will compensate the other’s family by $1 million.
This agreement is enforced by a crime gang the two are associated with.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Overcoming The Prisoner’s Dilemma
In anticipation of the dilemma, the two suspects have come to an agreement prior to the crime.
If they ever get caught, whoever walks out free will compensate the other’s family by $1 million.
This agreement is enforced by a crime gang the two are associated with.
| Years in jail (Suspect 1, Suspect 2) | Suspect 2’s Strategies | ||
| Testify | Deny | ||
| Suspect 1’s Strategies | Testify | (2 years, 2 years) | (0 year, 3 years) |
| Deny | (3 years, 0 year) | (1 year, 1 year) |
Overcoming The Prisoner’s Dilemma
Institutions: Rules and norms governing collective action, especially referring to those governing common property environmental resources.
Individuals cooperate because they believe others will also act in favor of collective good. This is the essential form of collection action.
But how do people come to these agreements?
What’s holding everybody committed and accountable?
The Institutional Approach
Private property
Exclusive ownership by private individuals.
Communal property
Res nullius – no exclusiveness, open to anyone.
Res communes – common property owned collectively, only the group has access.
| Excludable | Non-excludable | |
| Rivalrous | Private goods – food, clothes, cars. | Common-pool resources – fish stock, timber, coal. |
| Non-rivalrous | Club goods – cable TV, highways, private parks. | Public goods – free TV, atmosphere, national defense. |
The Institutional Approach
Political scientist at IU, 2009 Nobel Prize winner in Economic Sciences, established the Ostrom Workshop on campus.
A leading scholar of common pool resources. Her work emphasizes how humans interact with ecosystems to maintain long-term sustainable yields.
When players of a game can collude or negotiate, they are far more likely to cooperate (Ostrom, 1990).
Not to disprove Hardin’s “tragedy of the commons”, but to contest its universality and to offer a powerful set of counterexamples of conservationist social institutions.
The Institutional Approach
New Institutional Economics
A school of economics that emphasize the role of rules and social organizations.
Accept the logical incentives faced by individuals under Hardin’s “tragedy”.
Certain rules and conditions can make commons “not free” and encourage cooperative management of common resources.
The Institutional Approach
Key design principles
Clearly defined boundaries.
Costs should match benefits.
Rule are made collectively by users.
Monitoring systems are in place.
Sanctions are in place to punish violators.
Conflict resolution mechanisms are in place.
The system must have autonomy.
The Institutional Approach
Who are involved?
Boundaries – definable boundaries, resources stay within boundaries, no free-riding by third-parties.
What is the incentive structure?
Proportionality – just distribution of costs/benefits.
Sanctions – deterrence comes in when persuasion doesn’t work.
What are the functional modules?
Rule are made collectively.
Monitoring of the common property and of players’ activities.
Conflict resolution and adaptation.
Any external challenges?
Autonomy – free from external interference, perceptible threat of resource depletion.
The Institutional Approach
There are numerous examples of complex common resource management systems that relied neither upon state control or the assignment of exclusive property rights.
Irrigation practices.
Wildlife management and hunting.
Fishery management.
Stratospheric ozone restoration and protection.
The Institutional Approach
Example 1: irrigation system in Musha, Nile Valley
Irrigation requires collective management in order to ensure equal access and proper system function.
Water users connected through the same complex system of sluices, canals and gates, through which water flows from the highest point (the system “head”) to its lowest fields (its “tail”).
Fields may be privately owned, but water system must be managed collectively.
What if one person near the head fails to open a gate?
What if one person near the tail fails to open a gate?
The Institutional Approach
Example 2: elk hunting in Montana.
Some wildlife management systems use collective management strategies to prevent overhunting.
Excluding potential outside users.
Government limits the number of licensed hunters.
Establishing rules and limits.
Reviewing and overseeing these rules through consultation with resource users themselves.
Rules are overseen through a collective review process that includes Montana hunters themselves.
The Institutional Approach
The Institutional Approach
Example 4: phasing out Chlorofluorocarbons (CFCs)
The Montreal Protocol – the single most effective global environmental agreement in human history.
CFCs
Economically advantageous as refrigerants, solvents, and propellants in spray cans, etc.
Environmentally hazardous – destroys the atmospheric ozone layer.
Problem cannot be solved by unilateral decisions/actions.
So how was it solved?
The Institutional Approach
Example 4: phasing out Chlorofluorocarbons (CFCs)
Countries came to an agreement in 1987 in Montreal to phase out production and usage of CFCs in a very stringent fashion.
View countries as individuals and the atmospheric ozone layer as the common property.
The majority of countries indeed committed to this agreement. The atmospheric ozone layer has recovered observably since the decision.
So what made this success possible?
The Institutional Approach
Example 4: phasing out Chlorofluorocarbons (CFCs)
So what made this success possible?
CFCs are not as tightly entangled with the economy as carbon dioxide.
Affordable alternatives were already available.
Number of major CFC producing countries were limited, so not too many stakeholders at the negotiation table.
Technological as well as monetary transfers as compensation for losers.
Most importantly, strong incentives for major countries to comply.
The Institutional Approach
Example 4: phasing out Chlorofluorocarbons (CFCs)
So what made this success possible?
CFCs are not as tightly entangled with the economy as carbon dioxide.
Affordable alternatives were already available.
Number of major CFC producing countries were limited, so not too many stakeholders at the negotiation table.
Technological as well as monetary transfers as compensation for losers.
Most importantly, strong incentives for major countries to comply.
Today’s Topics
Global Climate Commons
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Global Climate Commons
The atmosphere and the global climate are common properties shared by all countries.
Costs of carbon reductions are local and incurred in the short term, benefits from reversing climate change are universal and enjoyed in the long term. So who shall pay?
Developed countries?
Primary contributor to the “stock” of GHGs.
Higher carbon emissions per capita.
Developing countries?
Higher population growth.
Opportunities to employ a different growth path and avoid carbon lock-in.
Global Climate Commons
Negotiating and enforcing collective rules are extremely difficult, but the framework has been established.
The United Nations Framework Convention on Climate Change (UNFCCC)
Conference of Parties (COPs)
The Kyoto Protocol (1997)
The Copenhagen Agreement (2009)
The Paris Agreement (2016)
Global Climate Commons
The Kyoto Protocol
An agreement between signatory countries to reduce carbon emissions.
Flexible – rules can change over time with new information.
Reduction targets are dispersed over time to allow time to develop new technology or regulations.
Countries can trade emissions with each other.
Joint but differentiated responsibility.
Annex 1 (developed) countries have earlier and mandatory cuts, share technology with Annex 2.
Annex 2 (less developed) countries have voluntary cuts.
No punitive measures for non-compliance.
Global Climate Commons
Kyoto Protocol vs. Montreal Protocol
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