John K. Stranlund

Local Environmental Control and Institutional Crowding-Out

Regulations that are designed to improve social welfare typically begin with the premise that individuals are purely self-interested. Experimental evidence shows, however, that individuals do not typically behave this way; instead, they tend to strike a balance between self and group interests. From experiments performed in rural Colombia, we found that a regulatory solution for an environmental dilemma that standard theory predicts would improve social welfare clearly did not. This occurred because individuals confronted with the regulation began to exhibit less other-regarding behavior and made choices that were more self-interested; that is, the regulation appeared to crowd out other-regarding behavior.

A Laboratory Investigation of Compliance Behavior under Tradable Emissions Rights: Implications for Targeted Enforcement

This paper uses laboratory experiments to test the theoretical observations that both the violations of competitive risk-neutral firms and the marginal effectiveness of increased enforcement across firms are independent of differences in their abatement costs and their initial allocations of permits. This conclusion has important implications for enforcing emissions trading programs because it suggests that regulators have no justification for targeting their enforcement effort based on firm-level characteristics. Consistent with the theory, we find that subjects’ violations were independent of parametric differences in their abatement costs. However, those subjects that were predicted to buy permits tended to have higher violation levels than those who were predicted to sell permits. Despite this, we find no statistically significant evidence that the marginal effectiveness of enforcement depends on any firmspecific characteristic. We also examine the determinants of compliance behavior under fixed emissions standards. As expected, we find significant differences between compliance behavior under fixed standards and emissions trading programs.

Economic inequality and burden-sharing in the provision of local environmental quality

A large, but inconclusive, literature addresses how economic heterogeneity affects the use of local resources and local environmental quality. One line of thought, which derives from Nash equilibrium provision of public goods, suggests that in contexts in which individual actions degrade local environmental quality, wealthier people in a community will tend to do more to protect environmental quality. In this paper we report on experiments performed in rural Colombia that were designed to explore the role that economic inequality plays in the ‘provision’ of local environmental quality. Subjects were asked to decide how much time to devote to collecting firewood from a local forest, which degrades local water quality, and how much to unrelated pursuits. Economic heterogeneity was introduced by varying the private returns to these alternative pursuits. Consistent with the Nash equilibrium prediction, we found that the players with more valuable alternative options put less pressure on local water quality. However, the subjects with less valuable alternative options showed significantly more restraint relative to their pure Nash strategies. Furthermore, they were willing to bear significantly greater opportunity costs to move their groups to outcomes that yielded higher average payoffs and better water quality than the Nash equilibrium outcome.

What Motivates Common Pool Resource Users? Experimental Evidence from the Field

This paper develops and tests several models of pure Nash strategies of individuals who extract from a common pool resource when they are motivated by a combination of self-interest and other motivations such as altruism, reciprocity, inequity aversion and conformism. We test whether an econometric summary of subjects’ strategies is consistent with one of these motivations using data from a series of common pool resource experiments conducted in three regions of Colombia. As expected, average extraction levels are less than that predicted by a model of pure self-interest, but are nevertheless sub-optimal. Moreover, we find that a model of conformism with monotonically increasing best response functions best describes average strategies. Our empirical results are inconsistent with models of altruism, reciprocity and inequity aversion.

Comparing the Effectiveness of Regulation and Pro‐Social Emotions to Enhance Cooperation: Experimental Evidence from Fishing Communities in Colombia

This paper presents the results from a series of framed field experiments conducted in fishing communities off the Caribbean coast of Colombia. The goal is to investigate the relative effectiveness of exogenous regulatory pressure and pro-social emotions in promoting cooperative behavior in a public goods context. The random public revelation of an individual’s contribution and its consequences for the rest of the group leads to significantly higher public good contributions and social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions.

Centralized and Decentralized Management of Local Common Pool Resources in the Developing World: Experimental Evidence from Fishing Communities in Colombia

This paper uses experimental data to test for a complementary relationship between formal regulations imposed on a community to conserve a local natural resource and nonbinding verbal agreements to do the same. Our experiments were conducted in the field in three regions of Colombia. Each group of five subjects played 10 rounds of an open access common pool resource game, and 10 additional rounds under one of five institutions— communication alone, two external regulations that differed by the level of enforcement, and communication combined with each of the two regulations. Our results suggest that the hypothesis of a complementary relationship between communication and external regulation is supported for some combinations of regions and regulations, but cannot be supported in general. We therefore conclude that the determination of whether formal regulations and informal communication are complementary must be made on a community-by-community basis.

Direct and Market Effects of Enforcing Emissions Trading Programs: An Experimental Analysis

Since firms in an emissions trading program are linked together through a permit market, so too are their compliance choices. Thus, enforcement strategies for trading programs must account for not only the direct effects of enforcement on compliance and emissions decisions, but also the indirect effects that occur because changes in enforcement can induce changes in permit prices. This paper uses laboratory experiments to test for these direct and indirect market effects. Consistent with theoretical predictions, we find a direct effect of enforcement on individual violations, as well as a countervailing market effect through the permit price. Thus, the productivity of increased enforcement pressure to reduce noncompliance is partially offset by a countervailing price effect. Furthermore, there is no direct effect of enforcement on the emissions choices of firms, only a negative price effect. This suggests that the only way increased enforcement can have an impact on environmental quality is if it is large enough and applied widely enough to induce an increase in the equilibrium permit price.

Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement

We propose an enforcement strategy to achieve complete compliance in a transferable emissions permit system when firms are required to provide reports of their own emissions. Like the literature on self-reporting in the enforcement of standards, we find that self-reporting can conserve monitoring costs, but for a different reason. In addition, we show that targeted monitoring—the practice of monitoring some firms more closely than others—is not necessary in a competitive permit system. Furthermore, tying penalties to the equilibrium permit price can stabilize the monitoring effort necessary to maintain full compliance in the face of permit price fluctuations.

Enforcing Transferable Permit Systems in the Presence of Market Power

We derive an enforcementstrategy for a transferable permit system inthe presence of market power that achievescomplete compliance in a cost-effective manner.We show that the presence of a firm with marketinfluence makes designing an enforcementstrategy more difficult than enforcing aperfectly competitive system. We alsore-consider Hahns (1984) suggestion that afirm with market influence should be allocatedpermits so that it chooses to not participatein the permit market. When enforcement and itscosts are taken into account, Hahns suggestiondoes not hold except in a very special case.

On the strategic potential of technological aid in international environmental relations

Prior to noncooperative choices of abatement of a transboundary pollutant, a technologically advanced country considers making an unconditional transfer of abatement technology to its less-advanced rival. Even though technological aid is given unconditionally and abatement strategies are chosen noncooperatively, in a number of plausible circumstances, a transfer of a superior control technology will induce Pareto-superior pollution abatement.