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Wealthy people do better? Experimental Evidence on Endogenous Time Preference Heterogeneity and the Effect of Wealth in Renewable Common-Pool Resources Exploitation

Gastón Giordana ()

Working Papers from LAMETA, Universtiy of Montpellier

Abstract: Aiming to better characterize the exploitation behavior of renewable common-pool resources, in this paper we explore alternative hypothesis about the valuation of the future by the agents and the possibility of heterogeneous behavior on this regard. To do this, we further analyze the experimental data of an N-person discrete-time deterministic dynamic game of T periods fixed duration. Firstly, we consider the homogeneous case where withdrawers’ rate of time preference is symmetrically determined. Then, we calibrate the best fitting model assuming alternatively, exogenous and endogenous time preference. The exogenous time preference case is the traditional assumption in modeling intertemporal choices, i.e. every period, players discount future values at the same level. In the endogenous case, we statistically model the reduced form of the discount factor as a transformation of a second order polynomial on wealth. Secondly, we further explore the endogenous case looking forward to assess the extent of heterogeneity in the rate of time preference formation process. Dynamic problems resolution gives scope for the implementation of ‘rules of thumb’ as a consequence of its' intrinsic complexity. Then, in order to identify the different decisions rules and to classify appropriators within them, we implement a Bayesian classification algorithm based on Houser et al (2004) work. The application of this econometric procedure has allowed us to identify two types of appropriators: “Quasi Myopic” (QM) appropriators and “Disrupted Farsighted” (DF) appropriators. The algorithm has classified near 85% of the appropriators in our sample as QM, and 5% as DF; the lasting agents could not be identified. We used the fitted empirical model to perform simulations. Some results are: (i) initial wealth increase the average efficiency of exploitation; (ii) when initial wealth is high (low), a more equally (unequally) distribution of wealth between types results in higher efficiency in the exploitation of the resource.

Pages: 46 pages
Date: 2008-07, Revised 2008-07
New Economics Papers: this item is included in nep-env and nep-exp
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