Smart Subsidies for Conservation Jason Shogren University of Wyoming October 2005.
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Transcript of Smart Subsidies for Conservation Jason Shogren University of Wyoming October 2005.
Smart Subsidies for Conservation
Jason ShogrenUniversity of Wyoming
October 2005
On-going research with:– Todd Cherry
– Peter Frykblom
– Terry Hurley
– Stephan Kroll
– Chris McIntosh
– Greg Parkhurst
– Chad Settle
– Dave Finnoff
Homo economicus?
Conservation on private lands
• Biological Needs
• Political Realities
• Economic Incentives
ESA policy
Endangered Species Act of 1973 in the US
• Habitat Conservation Plans
• Compensation question
Experimental Economics
• Interactions between humans and nature through institutions
Rule of One
• One person is enough to make a market…
• One person is enough to break a game.
• This distinction makes a difference if you are relying on rational choice theory to guide land management and environmental policy.
• It makes a bit more sense if people make, or act as if they make, consistent and systematic choices toward certain and risky events.
Range of actors
Hamlet Econobot
Machiavelli
Markets
No Markets
Missing Markets
• Land policy and environmental policy is about structuring incentives– What do we know about how people
react to incentives– How this affects nature– How this feedback loop affects people– And so on
Agglomeration Bonus
Bonus*Retired Parcel
Bonus*
Bonus*
Bonus*
Retired Acre
Bonus*
Bonus*
Bonus*
Bonus*
Coordination Game
• Multiple Nash equilibria
• Payoff Dominance
• Risk Dominance
Coordination failure
• Coordination failure—any outcome other than the first best solution
• 2 forms of coordination failure:
– fragmentation– second best outcomes of contiguous
habitat reserves.
Definitions
• Biological efficiency –the number of borders shared between conserved parcels relative to the optimal number of shared borders
• Economic Efficiency –the percentage of possible rents earned by the group as a whole.
Payoff Matrix—Transfers w/ an Agglomeration Bonus
Actions
Player 2
Player 1 1 2 3 4 5 6 7 8
1 60 60 60 105 60 95 60 85 60 111 60 109 60 101 60 99
2 105 60 105 105 105 95 105 85 105 111 105 109 105 101 105 99
3 95 60 95 105 95 95 95 85 95 111 95 109 95 101 95 99
4 85 60 85 105 85 95 135 135 85 111 85 109 105 121 115 129
5 111 60 111 105 111 95 111 85 111 111 111 109 111 101 111 99
6 109 60 109 105 109 95 109 85 109 111 109 109 109 101 109 99
7 101 60 101 105 101 95 121 105 101 111 101 109 121 121 121 119
8 99 60 99 105 99 95 129 115 99 111 99 109 119 121 129 129
The Grid Game
• 10x10 spatial grid with 100 cells• 4 players• Each owns 25 cells• Retire up to 6 parcels• Creates ~68,000+ strategies • (68,000)4 potential outcomes• Agglomeration Bonus Menu
Symmetric land grid2 2 2 2 2 2 2 2 2 2
4 4 4 4 4 4 4 4 4 4
6 6 6 6 6 6 6 6 6 6
8 8 8 8 8 8 8 8 8 8
10 10 10 10 10 10 10 10 10 10
10 10 10 10 10 10 10 10 10 10
8 8 8 8 8 8 8 8 8 8
6 6 6 6 6 6 6 6 6 6
4 4 4 4 4 4 4 4 4 4
2 2 2 2 2 2 2 2 2 2
Conservation Objectives
• Corridor
• Core
• Cross
• Corners
Corridor
Core
Cross
Corners
Subsidies
• Four subsidies within the subsidy menu mechanism:
– Per conserved habitat acre subsidy; – Own shared border – Row shared border subsidy– Column shared border subsidy
• Subsidies = + / – / 0.
Own Shared Border Bonus
Row Shared Border Bonus
Column Shared Border Bonus
0
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Incentive Constraints
0
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)9,5()8,5()7,4()7,3(
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)3,5()2,5()4,4()4,3(
)6,1()6,2()6,3()6,4(
)6,10()6,9()6,8()6,7(
)5,10()5,9()5,8()5,7(
)5,1()5,2()5,3()5,4(
yyyyS
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)7,8()7,7()6,8()10,6()9,6()8,6(
)7,3()7,4()6,3()10,5()9,5()8,5(
)4,8()4,7()5,8()3,6()2,6()1,6(
)4,3()4,4()5,3()3,5()2,5()1,5(
)7,3()6,3()8,4()8,5(
)7,8()6,8()8,7()8,6(
)4,8()5,8()3,7()3,6(
)4,3()5,3()3,4()3,5(
)10,7()9,7()8,7()7,7()6,7(
)1,7()2,7()3,7()4,7()5,7(
)10,4()9,4()8,4()7,4()6,4(
)1,4()2,4()3,4()4,4()5,4(
23
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CB
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)7,8()7,7()6,10()6,9(
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)4,4()4,3()5,1()5,2(
)7,8()6,9(
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)7,3()6,2(
)4,3()5,2(
yyyyS
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RB
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OB
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CB
Agglomeration Bonus MenuPer Brown
Own Border
Row Border
Column Border
Corridor $3 $8 $16 $0
Core 3 16 13 8
Cross 3 19 16 16
Corners 3 8 - 5 - 5
Figure 2. Grid Game Nash Equilibria
Pareto Dominant Nash Equilibrium (1)
Earnings: 227 per player
Each player must have: 5 Brown cells—All $10 4 shared own borders 5 shared row borders
0 shared column borders
Pareto Dominated Nash Equilibria
Earnings: 213 per player
Each player must have: 5 Brown cells—4-$10, 1-$8
4 shared own borders 4 shared row borders
0 shared column borders
Pareto Dominated Nash Equilibria
Earnings: 207 per player
Each player must have: 5 Brown cells—3-$10, 2-$8
5 shared own borders 3 shared row borders
0 shared column borders
Pareto Dominated Nash Equilibria
Earnings: 195 per player
Each player must have: 5 Brown cells—2-$10, 2-$8, 1-$6
5 shared own borders 2 shared row borders
0 shared column borders
Risk Dominant Nash Equilibria
Earnings: 191 per player
Each player must have: 5 Brown cells—2-$4, 3-$2
5 shared own borders 0 shared row borders
0 shared column borders
Experiment Design Ten structural elements:
– Treatments: A-B-A design– Players/matching—4 randomly matched each
round – Land grid– Subsidies– Strategies—brown out cells– Grid Calculator– Communication—pre-play cheap talk– Information—common knowledge about
payoffs and strategies in a round. Private information for accumulated payoffs
– History– Procedures—standard protocol/computer
Core—Round 1
Core—Round 2
Core—Round 3
Core—Round 4
Core—Round 5
Core—Round 6
Core—Round 7
Core—Round 8
Core—Round 9
Core—Round 10
Corridor—Round 11
Corridor—Round 12
Corridor—Round 13
Corridor—Round 14
Corridor—Round 15
Corridor—Round 16
Corridor—Round 17
Corridor—Round 18
Corridor—Round 19
Corridor—Round 20
Core—Round 21
Core—Round 22
Core—Round 23
Core—Round 24
Core—Round 25
Core—Round 26
Core—Round 27
Core—Round 28
Core—Round 29
Core—Round 30
Corridor-Core-Corridor
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Round
Economic Efficiency
Group 1 Group 2 Group 3 Group 4
Corner-Core-Corner
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Round
Economic Efficiency
Group 1 Group 2 Group 3 Group 4
New Research
• Asymmetric land values
• Combine agglomeration bonus with other incentive mechanisms (TDRs)
Asymmetric Land Values
U participant Column participant
20 20 20 30 30 30 40 40 40 40 20 20 30 30 30 40 40 40 40 40 20 30 30 30 40 40 40 40 40 40 30 30 30 40 40 40 40 40 40 40 30 30 40 40 40 40 40 40 40 40
40 40 40 40 40 40 40 40 40 50 40 40 40 40 40 40 40 40 50 50 40 40 40 40 40 40 40 50 50 50 40 40 40 40 40 40 50 50 50 50 40 40 40 40 40 50 50 50 50 50 Row Participant Adjacent Participant
Target Habitat
Figure C. Illustrative Example—No Subsidy
Round 1 Round 2 Round 3 Round 4
Round 5 Round 6 Round 7 Round 8
Round 9 Round 10 Round 11 Round 12
Round 13 Round 14 Round 15 Round 16
Round 17 Round 18 Round 19 Round 20
Figure D. Illustrative Example—Simple Subsidy
Round 1 Round 2 Round 3 Round 4
Round 5 Round 6 Round 7 Round 8
Round 9 Round 10 Round 11 Round 12
Round 13 Round 14 Round 15 Round 16
Round 17 Round 18 Round 19 Round 20
Figure E. Illustrative Example—Agglomeration Bonus
Round 1 Round 2 Round 3 Round 4
Round 5 Round 6 Round 7 Round 8
Round 9 Round 10 Round 11 Round 12
Round 13 Round 14 Round 15 Round 16
Round 17 Round 18 Round 19 Round 20
Agglomeration Bonus without Communication
Entire Matrix—Bonus Specification• Per brown cell bonus Tokens = 20• Own shared border bonus Tokens = 50• Row shared border bonus Tokens = 24• Column shared border bonus Tokens = 22
Tradable Permit-Pilot treatments
Table 1. Desired Outcome Dominant Nash Equilibrium A B 40 40 40 40 40 50 50 50 50 50
40 40 40 40 40 40 50 50 50 50
40 40 40 40 40 40 40 50 50 50
40 40 40 40 40 40 40 40 50 5040 40 40 40 40 40 40 40 40 50
30 30 40 40 40 40 40 40 40 50
30 30 30 40 40 40 40 40 40 50
20 30 30 30 40 40 40 40 40 50
20 20 30 30 30 40 40 40 40 5020 20 20 30 30 30 40 40 40 50
C D
Tradable Permits with Subsidy Subsidy: Per Conserved Cell $0 Own Shared Border (OB) $50 Row Shared Border $0 Column Shared Border $0 Shared Borders 31 Exposed Borders 18 Opportunity Cost (OC) $570 Subsidy Payments $1550 Total Earnings $4870
Figure 3. Illustrative Example—TSARs
Round 1 Round 2 Round 3 Round 4
Round 5 Round 6 Round 7 Round 8
Round 9 Round 10 Round 11 Round 12
Round 13 Round 14 Round 15 Round 16
Round 17 Round 18 Round 19 Round 20
Figure 4. Illustrative Example—TSARs w/Agglomeration Bonus
Round 1 Round 2 Round 3 Round 4
Round 5 Round 6 Round 7 Round 8
Round 9 Round 10 Round 11 Round 12
Round 13 Round 14 Round 15 Round 16
Round 17 Round 18 Round 19 Round 20
Weak Bioeconomic Efficiency
Efficiency
Cheap Talk, 6-10
NO Chat, 16-20
Cheap Talk, 11-20
NO Chat, 11-16
NO Chat, 6-10
Cheap Talk, 1-5
NO Chat, 1-5
88
90
92
94
96
98
100
70 75 80 85 90 95 100
WB
EE
Applications?
• Prairie dog towns in Montana• Wetland reserves in Mississippi• Conservation easements in North Dakota• Conservation auctions in Victoria, Australia
J Roughgarden’s Guide to Diplomatic Relations with Economists
Joan’s rules of engagement:• Know who economists are• Don’t assume the higher moral ground• Get used to their idea of valuation• Don’t underestimate them• Explain how ecology promotes economic
growth
“If you want to save the environment, don’t hug a tree, hug an economist.”
Bill Moyers, Commentator for US Public
Broadcasting System (PBS)
