Impact of Risk and Uncertainty in the Provision of Local and Global Environmental Goods: An Experimental Analysis

Lata Gangadharan () and Veronika Nemes

No 956, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Uncertainties and risks in the decision making process are abundant in the area of environmental economics, irrespective of whether the problems being discussed are local or global. This paper uses laboratory evidence from public goods games to examine how in payoff equivalent situations, decision makers contribute towards local or global environmental goods, in the presence of risk and uncertainties in the provision of these goods. We use a within subject design that allows for comparisons across seven different treatments in which subjects are exposed to internal (strategic) and external (environmental) risk and uncertainty. Our results show that the location of the risk and uncertainty matters, with subjects moving away from the external uncertainty in favor of internal uncertainty, when that uncertainty is associated with the local environmental good. When the uncertainty relates to the global environmental good, subjects face both external and internal uncertainty on the same good leading to a significant drop in contributions. We find that in the presence of risk and uncertainty subjects use feedback from other members of their group when deciding about future contributions. The reward for research and development and innovation is captured in the experimental design by the increased probability of obtaining the desired outcome in the endogenous probability treatment. Subjects seem to understand this incentive and contribute more towards global goods in this treatment.

Keywords: Experiments; Public Goods; Local and Global Environmental Problems; Risk; Uncertainty. (search for similar items in EconPapers)
JEL-codes: C91 H41 Q00 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005
New Economics Papers: this item is included in nep-exp and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.economics.unimelb.edu.au/downloads/wpapers-05/956.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.economics.unimelb.edu.au/downloads/wpapers-05/956.pdf [301 Moved Permanently]--> http://fbe.unimelb.edu.au/economics/downloads/wpapers-05/956.pdf [301 Moved Permanently]--> https://fbe.unimelb.edu.au/economics/downloads/wpapers-05/956.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:956

Access Statistics for this paper

More papers in Department of Economics - Working Papers Series from The University of Melbourne Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Dandapani Lokanathan ().