TY - JOUR
T1 - Collective risk-taking in the commons
AU - Bochet, Olivier
AU - Laurent-Lucchetti, Jeremy
AU - Leroux, Justin
AU - Sinclair-Desgagné, Bernard
N1 - Funding Information:
The study was financially supported by the National Natural Science Foundation of China (Grant No: 51278144), Shenzhen Science & Technology R&D Funding (Grant No: JCYJ20120613150442560 and JCYJ20150902154515690). Thanks also to our colleagues in the laboratory (Junli Wang, Wendong Shi, and Ruinan Niu).
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2019/7
Y1 - 2019/7
N2 - The management of natural commons is typically subject to threshold effects. If individuals are risk-averse, some of the recent economic literature holds that uncertainty on the threshold may have a positive impact by lowering incentives to over-consume. The paper shows that, this intuitive result may unravel when uncertainty is modeled as a discrete or multimodal distribution. Using a variant of the Nash demand game with two thresholds, two types of Nash equilibria typically coexist: cautious (respectively, dangerous) equilibria in which agents coordinate on the low threshold (resp. the high threshold). When both types of equilibria coexist, the symmetric dangerous equilibrium is always Pareto dominated by the symmetric cautious equilibrium, and the latter is always Pareto efficient. We use an experimental setting to assess the severity of the coordination and equilibrium selection problem. While cautious (resp. dangerous) play is decreasing (resp. increasing) in the probability that the threshold is high, coordination failures are salient for intermediate probabilities where the likelihood of coexistence of both type of equilibria is high. We find that there is a U-shaped relationship between overall coordination and the probability that the threshold is high.
AB - The management of natural commons is typically subject to threshold effects. If individuals are risk-averse, some of the recent economic literature holds that uncertainty on the threshold may have a positive impact by lowering incentives to over-consume. The paper shows that, this intuitive result may unravel when uncertainty is modeled as a discrete or multimodal distribution. Using a variant of the Nash demand game with two thresholds, two types of Nash equilibria typically coexist: cautious (respectively, dangerous) equilibria in which agents coordinate on the low threshold (resp. the high threshold). When both types of equilibria coexist, the symmetric dangerous equilibrium is always Pareto dominated by the symmetric cautious equilibrium, and the latter is always Pareto efficient. We use an experimental setting to assess the severity of the coordination and equilibrium selection problem. While cautious (resp. dangerous) play is decreasing (resp. increasing) in the probability that the threshold is high, coordination failures are salient for intermediate probabilities where the likelihood of coexistence of both type of equilibria is high. We find that there is a U-shaped relationship between overall coordination and the probability that the threshold is high.
KW - Common-pool resources
KW - Nash demand game
KW - Uncertain thresholds
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U2 - 10.1016/j.jebo.2019.04.011
DO - 10.1016/j.jebo.2019.04.011
M3 - Article
AN - SCOPUS:85065557259
SN - 0167-2681
VL - 163
SP - 277
EP - 296
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -