Academic journal article Agricultural and Resource Economics Review

Do Static Externalities Offset Dynamic Externalities? an Experimental Study of the Exploitation of Substitutable Common-Pool Resources

Academic journal article Agricultural and Resource Economics Review

Do Static Externalities Offset Dynamic Externalities? an Experimental Study of the Exploitation of Substitutable Common-Pool Resources

Article excerpt

Overexploitation of coastal aquifers may lead to seawater intrusion, which irreversibly degrades groundwater. The seawater intrusion process may imply that its consequences would not be perceptible until after decades of accumulated overexploitation. In such a dynamic setting, static externalities may enhance the users' awareness about the resource's common nature, inducing more conservative individual behaviors. Aiming to evaluate this hypothesis, we experimentally test predictions from a dynamic game of substitutable common-pool resource (CPR) exploitation. The players have to decide whether to use a free private good or to extract from one of two costly CPRs. Our findings do not give substantial support to the initial conjecture. Nevertheless, the presence of static externalities does induce some kind of payoff reassurance strategies in the resource choice decisions, but these strategies do not correspond to the optimum benchmark.

Key Words: common-pool resources, substitutable goods, dynamic externalities, survival data, proportional hazard, experiment

(ProQuest: ... denotes formulae omitted.)

In many coastal zones, rich groundwater reservoirs have often been generated after thousands of years of deposit sedimentation, producing multiple closed layers with high quality water. For end-users, each such layer represents an imperfect substitute toward other water resources, like surface water or a shallow aquifer. Today, most of these coastal reservoirs are overexploited due to the increasing concentration of human settlements-50 percent of the world population lives within 60 km of a shoreline-agricultural development, and economic activities. Overexploitation increases the risk of natural seawater intrusion into the aquifer because excessive pumping lowers the water table, facilitating seawater invasion into the fresh groundwater reservoir. This process, which renders groundwater useless for irrigation and human consumption, is accelerated by the tendency of sea levels to rise due to climate change.

In many areas, groundwater is exploited under common property regimes, which induces insufficient incentives toward conservation of the resource, leading to a "tragedy of the commons" (Hardin 1968). However, the empirical literature on "commons" provides many examples of local communities that have succeeded in setting up self-enforcing rules to avoid such an undesirable collective issue (Ostrom, Gardner, and Walker 1994).1 But the threat of seawater intrusion in the case of coastal aquifers is hardly perceived by local communities who exploit them, mainly because in most cases the possible damages are delayed by several decades, and often affect only future generations. Consequently, unless future consequences of current exploitation are correctly assessed, the slowness of the groundwater's quality degradation progression supports a process of delay and inertia in implementing regulation policies or in setting up formal property rights to prevent inefficient use (Libecap 2008, Giordana and Montginoul 2006). This particularity of coastal aquifers raises the issue of the sustainable exploitation of such types of resources.2

As the common-pool resource becomes relatively scarce, two types of negative externalities affect its users: a static externality and a dynamic externality. In a given period, a static externality arises whenever current withdrawals reduce current exploitation profits,3 because users compete with each other for the available units. A dynamic externality arises if such static competition among users also affects the available units of the resource in future periods. For instance, if the current withdrawals are larger than the natural recharge, then, assuming that the population of users and their needs are constant over time, a dynamic externality may arise. In such a situation, the current extraction decision of any given agent affects not only the future profits of his rivals, but his own future profits as well. …

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