Introduction to the Theory of HES

Social Dilemmas and Collective Action in Human-Environment Systems

Part I - November 3, 2008

Prof. Stefanie Engel, Chair of Environmental Policy and Economics

CHN K 76.3, sengel@ethz.ch

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Outline

1. Concepts (Social dilemmas, Public Goods, ‚Tragedy of the Commons‘)

2. Ex. 1: Community-based natural resource management (CBNRM)

3. Collective Action & CBNRM (Theories, Success factors)

Next class:

Collective Action & CBNRM (cont.)

Experimental evidence

Ex. 2: Collective Action & International Commons

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Literature

Recommended reading to complement lecture:

Ostrom, E., et al. (1999), Revisiting the Commons: Local Lessons, Global Challenges. Science 284:278-282.

Agrawal, A. (2001), Common Property Institutions and Sustainable Governance of Resources. World Development 29(10):1649-1672.

Other main references on the theme:

Olson, M. 1965. The Logic of Collective Action: Public Goods and the Theory of Groups Cambridge: Harvard University Press.

Hardin, G. 1968. The Tragedy of the Commons. Science 162(3859):1243-1248.

Ostrom, E. 1990. Governing the Commons. New York: Cambridge University Press.

Baland, J. and J.P. Platteau. 1996. Halting Degradation of Natural Resources: Is There a Role for Rural Communities? Oxford: Clarendon Press.

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A Social Dilemma Class Game

Each of you to make a bid between 0 and 10 CHF

Total sum of bids is multiplied by 1.5 and then evenly distributed among all of you (regardless of your bids) next class

Round 1: No communication; Bids and payoffs are kept fully anonymous vis-á-vis other students; Payoffs handed out in close envelope next class

Round 2: With communication; open bidding; payoffs made known next class

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A Social Dilemma Class Game (cont.)

If everyone contributed 10, everyone gets 15 ( gain of 5)

In fact, bids of 10 maximize total payoffs for the class

But: If everyone else contributes 10 and individual i contributes 0, i gets to keep his endowment of 10 and in addition gets 1.5/n Σxj, where n=# of students in the class and Σxj is sum of other students‘ contributions

So, for n=10, i would get 10+0.15*90=23.5

In general: Individual i‘s payoff with bid xi: 10-xi+1.5/n(xi+Σxj)

For n≥2, payoff-maximizing bid is zero

Yet, if everyone choses to bid zero, everybody has payoff 10 no gain

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Social dilemmas

Game simulates a social dilemma: Everyone would be better off if everyone contributes to the common good, but if each one takes others‘ contributions as given she can do better by free riding on others‘ efforts, resulting in lower returns for all

Classic example: Hardin‘s (1968) ‚Tragedy of the Commons‘ next slide (overgrazing on common pasture)

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“The tragedy of the commons develops in this way. Picture a pasture open to all. (…) As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?„ This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decisionmaking herdsman is only a fraction of -1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another.... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit-in a world that is limited.“(Hardin, 1968, p. 1244)

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Social dilemmas (cont.)

Examples discussed in this class

Local commons (e.g., grazing lands, community-managed forests, irrigation schemes etc.)

International commons (e.g., climate change, ozon layer, ocean fishery)

Do such situations inevitably lead to ‚Tragedy of the Commons‘?

If not, which factors influence results?

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Types of Goods with Potential for Social Dilemmas

Common-pool resources: Natural and human-constructed resources in which (i) exclusion of beneficiaries through physical and institutional means is especially costly, and (ii) exploitation by one user reduces resource availability for others

Ex.? Groundwater basins, irrigation systems, fisheries

Public goods: Difficult to exclude others from benefiting and non-rival in consumption (i.e., one person‘s use does not reduce availability to others)

Ex.? Climate, clean air

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Social Dilemmas as ‘Prisoner‘ Dilemma‘The Class Game with 2 Students

Student 2

Stu

den

t 1

Cooperate (x=10) Defect (x=0)

Coo

pera

teD

efec

t

17.5, 7.5 10, 10

A pair of strategies is a Nash equilibrium if each player’s strategy is optimal, i.e. maximizes her payoffs given the strategy of the other player

(D, D) is the Nash Equilibrium;But (C, C) is the Social Optimum

15, 15 7.5, 17.5

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2 herdsmen, who decide how many animals (1 or 2) to let pasture on common land

If both choose 1, each receives payoff of 5

If both choose 2, animals underfed animals lose economic value payoff is 4 (2 per animal)

If A puts 1 and B puts 2, payoffis 3 per animal

Social Dilemmas as ‘Prisoner‘ Dilemma ‘Hardin‘s ‘Tragedy of the Commons‘

Equilibrium: Both put 2 animals

1

2

21No. ofanimals

Herdsman B

Herdsman A5, 5 3, 6

6, 3 4, 4

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Ex. 1: Community-based natural resource management (CBNRM)

Natural resources in developing countries often used jointly by local communities (groups of users)

Ex: Common grazing lands; Local forests used for extraction of fuelwood and non-timber forest products; Local fisheries

Socio-anthropological field studies show much variation in outcomes (e.g., Ostrom 1990)

CBNRM does not always result in ‘Tragedy of the Commons’; some communities setting up effective system of use and access rules

Hardin’s view overly pessimistic. How can we explain variation?

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Ex. 1: CBNRM (cont.) Moreover: Over past decades trend, mostly in developing countries,

to devolve (at least partially) rights and responsibilities over natural resource management from state to local communities and user groups ‘Devolution’, ‘Decentralization’, ‘Participatory Management’, ‘Co-

Management’ Ex: 50 countries devolving forest management (FAO 1999), ‘Community

Irrigation Management’, Community-based Wildlife Management, etc., etc.

Various reasons: state failure in management (lack of monitoring and enforcement capacity; corruption), social justice considerations, declining national budgets, ground-level and donor-driven movements for participatory management approaches

Idea: ‚Sense of ownership‘ leading to incentives for self-regulation & sustainable use

Results also mixed (cases of success and failures). How to explain this?

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CBNRM as a Social Dilemma

Behavior of each resource user affects environmental outcome

(e.g., forest quality)

Environmental outcome affects all individuals‘ livelihoods

Everyone better off if collective resource use is reduced, but if each

user considers only own immediate benefits, not impact on others:

‚Tragedy of the commons‘ possible

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Role of collective action (cont.)

Overcoming ‚the tragedy‘ requires Collective Action/Cooperation- Everyone reducing extraction of fuelwood ( Common-pool resource

problem, ‚Appropriation problem‘)

- Contributing to afforestation, monitoring activities (Public goods problem, ‚Provision problem‘)

Under what conditions can we expect communities to agree on use/management/access rules and to abide by them?

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Theories of Collective Action

Olsen‘s ‚Logic of Collective Action‘ (1965)

Group outcome as sum of individual selfish decisions

Although everyone would be better off from cooperation, each individual overexploits/underprovides due to ignoring effects of her actions on others ( Prisoners‘ Dilemma idea, similar to Hardin, 1968)

Large number of studies formalizing the idea & analyzing effects of different user group characteristics on outcomes

Ex: Baland/Platteau 1996, 1997, 1998, 1999, 2002; Bardhan/Dayton-Johnson 2002; Dayton-Johnson/Bardhan 2002; Farrell/Scotchmer 1988; Stern et al. 2002)

See also Hardin (1982) for review of theory

Agrawal (2001): Synthesis of major studies on CBNRM

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The role of group size

Olson (1965): Collective action less likely in larger groups

More recent results on Group Size:

Result still holds in some models (e.g., the appropriation model)

# of boats in equilibrium

(# ofPlayers)

Value of fish stock Y=an-bn2

Initial price of a boat p

Social opt.

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The role of group size (cont.)

Group Size:

But also: Possible economies of scale in transaction costs of monitoring/enforcement at small-medium group sizes

Relationship may be inverted-U shape (Collective action at first increases with group size, then decreases) (Agrawal/Goyal 2001)

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The role of heterogeneity

Olson (1965): Collective action less likely in more heterogeneous groups

More recent results on Heterogeneity:

Effect depends on context and type of heterogeneity.

Socio-cultural heterogeneity tends to reduce collective action

Economic heterogeneity may in some cases enhance it (more below..)

- For ex., rich user with large share of benefits may opt to act unilaterally, while poor users facing resource constraints may contribute less

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Is ‚Tragedy‘ inevitable?

Simple Prisoner Dilemma framework while useful to explain ‘Tragedy of the Commons’ cannot explain cases of success

Too narrow to describe the full range of real-world Commons situations

Alternative explanations:

Repeated interactions

Alternative payoff/game structures

Social preferences

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Repeated Interactions

If Prisoners‘ Dilemma game is repeated an infinite or uncertain number of times, this introduces the possibility of conditional cooperation and punishment (‚tit-for-tat‘)

‚Folk Theorem‘: Cooperative outcome is one possible equilibrium

Equilibrium is path-dependent, based on presence of trust

Cooperation also possible when actors also interact on other issues

Degree of social interactions & trust as influencing factors

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Different Payoff Structures

Idea: Not all Commons situations may exhibit payoff structure of a Prisoner Dilemma

Payoffs may take form of a game in which Collective Action/Cooperation is an equilibrium outcome

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Cooperate (no dyn.)

Different Payoff StructuresThe Assurance Game

Cooperation is one possible equilibrium (no incentive to defect once it is implemented, but getting there requires coordination)

If A cooperates, it is also better for B to cooperate

If only one cooperates both are worse off

Example: Fishing without DynamitePlayer B

Player A

Defect (dynamite)

D

C

2, 2 0.5, 0

3, 30, 0.5

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Different Payoff StructuresThe Assurance Game (cont.)

Captures widely observed phenomenon that people tend to cooperate when others do (more below)

Role for communication, trust, leadership (acting first)

Norms help to enhance predictability of others’ reactions/behavior

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Assurance games with >2 players

Can show that in an assurance game with n players, there are usually two possible Nash Equilibria:

1. Nobody contributes/cooperates

2. A fraction of players contributes, the others free-ride (Threshold effect)

In small groups the fraction contributing may be 100%, but in larger groups it is usually a subset only.

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Ex: Maintenance of resource crucial to survival

Maintained resource yields 10, maintenance costs 4

Different Payoff StructuresThe Chicken game

2 equilibria: (C,D) and (D,C), both of which are social optima

Captures idea that consequences of noncooperative behavior are sufficiently gloomy to induce some players to cooperate even when others do not.

Solutions in practice: Unilateral contribution, ‚Claim of first entrant‘, Lottery

Player B

Player A

Cooperate Defect

C

D

8, 8 6, 10

2, 210, 6

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Ex: Poor cannot afford

unilateral contribution

Only equilibrium is: Rich contribute, Poor does not (but C,C is social optimum)

Different Payoff StructuresHeterogenous Groups

Player B (Poor)

Cooperate Defect

C

D

15, 4 13, 5

Player B (Poor)

Player A(Rich)

Cooperate Defect

C

D

15, 4 13, 5

2, 217, -1

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16, 215, 4

Different Payoff StructuresHeterogenous Groups and Leadership

Ex: Rich assumes leadership role, putting into effect a system of sanctions punishing non-contributors, incl. himself

Without sanctions (as before)

With punishment of 3if defect when othercooperates; Cooperatorgets the fine

Player B (Poor)

Player A(Rich)

Cooperate Defect

C

D

15, 4 13, 5

2, 217, -1

Player B (Poor)

Player A(Rich)

Cooperate Defect

C

D 2, 214, 2

Both cooperate Rich gains, poor loses

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Insights from various game structures

Game structure & outcomes depends on payoffs

Payoffs depend on various factors which may differ across communities and contexts, e.g.,

Type of resource

Distribution of benefits and costs from resource extraction

Exit possibilities (alternatives)

Subsistence constraints (e.g. ability to contribute)

etc.

Differences in such factors may explain differences in outcomes

Also: Relevance of communication, trust, norms, leadership