ANALYSISEconomic inequality and burden-sharing in the provision of local environmental quality
Introduction
Many rural communities in the developing world depend to a large degree on access to local natural resources and on local environmental quality. A large body of literature has emerged that addresses how economic heterogeneity—inequality of wealth, income, or economic opportunity within a community—affects the use of local resources and environmental quality. Taken as a whole, this literature is inconclusive (Varughese and Ostrom, 2001, Bardhan and Dayton-Johnson, 2002). One line of thought, however, originates with Olson's (Olson, 1965) well-known hypothesis that wealthier people in a group will tend to take on a larger share of providing a public good than their poorer counterparts. Refining Olson's hypothesis, Bergstrom et al. (1986) suggested that this effect is enhanced by greater income inequality.1 These results suggest the hypothesis that in contexts in which individual actions degrade local environmental quality, the wealthier members of the community will do more to protect local environmental resources than their poorer neighbors because they will limit their damaging actions to a greater extent. Greater inequality suggests a further shift of the burden of environmental protection to the wealthier members of a community.2
The theoretical predictions of how income inequality affects the provision of public goods are generated from models of Nash non-cooperative behavior; that is, using the standard assumption of purely self-interested strategic behavior. However, we know from a wealth of experimental literature that subjects in experiments involving public goods do not typically play purely self-interested strategies.3 Rather, they make choices that seem to balance pure self-interests against group interests. Consequently, groups of individuals in public good environments tend to achieve more efficient outcomes than Nash equilibrium outcomes.
In this paper we report on experiments we designed to explore the role that economic inequality plays in the ‘provision’ of local environmental quality in the developing world. Rather than test Nash equilibrium predictions about how economic inequality affects local environmental quality, we explore burden sharing in achieving better-than-Nash equilibrium outcomes. Specifically, we ask the question of whether the richer members of a community do more than their poorer neighbors to help the community escape the adverse welfare and environmental effects of purely self-interested strategic behavior, or whether it is the other way around.
Our experiments were performed in three rural areas of Colombia. The areas were chosen because villagers in each region have significant interests in local natural resources and environmental quality. In fact, the experiments were designed to approximate an environmental quality problem that rural villagers in developing countries are likely to face. Subjects were asked to decide how much time to devote to collecting firewood from a local forest, and how much to devote to an alternative market pursuit such as wage labor or farming one's own land. Time spent collecting firewood has adverse environmental consequences because it leads to soil erosion and worsened local water quality due to increased sedimentation. The public goods aspect of the problem is that individual restraint in firewood collection improves water quality, which is a benefit shared by all in the community.4
While subjects faced symmetric private returns from time spent collecting firewood and symmetric shared costs from water quality degradation, economic heterogeneity was introduced by varying the private returns to the alternative market pursuit.5 Two treatments of the experiment were administered—one in which the subjects faced different returns in the market, and the other in which subjects faced symmetric returns to this alternative. The model that we used to generate the payoffs for the experiments was constructed so that average returns to the market alternative (per unit of effort) are the same in both the symmetric and asymmetric treatments. More importantly, the Nash equilibria of the two treatments yield the same aggregate amount of time spent collecting firewood, and hence, local water quality. However, individual Nash equilibrium choices differ in the two treatments. Consistent with the prediction of Olson and Bergstrom, Blume and Varian, individual equilibrium choices in the symmetric treatment are also symmetric, but in the equilibrium of the asymmetric game, the high-wage players—those with more valuable alternative market options—are predicted to show more restraint in exploiting the local forest, thereby doing more to protect local water quality than their less advantaged neighbors.6
Each group of subjects played a number of rounds of the game without being able to communicate with others in their group, and then continued to play additional rounds in which they were allowed to engage in non-binding and non-threatening communication between rounds. Allowing subjects to communicate with each other was motivated by the fact that many local environmental and natural resource dilemmas are addressed through cooperative efforts by local residents (Ostrom, 2000). Moreover, an overwhelming amount of experimental evidence suggests that face-to-face communication is effective in enhancing cooperation in experiments of this type (Hackett et al., 1994, Ostrom et al., 1994, Ledyard, 1995).
The results of our experiments yield intriguing insights about burden-sharing in the provision of local environmental quality. As predicted by the equilibrium of our asymmetric game, the high-wage players spent less time harvesting firewood than their poorer counterparts, thereby putting less pressure on local water quality. As expected, however, the subjects did not choose pure Nash strategies. Across the board the groups achieved outcomes with higher average payoffs and better water quality than the equilibrium predictions, thereby setting the stage for exploring burden-sharing in achieving these more efficient outcomes. Our results from this exploration are unequivocal. By calculating the differences between individuals’ actual choices and their Nash best-responses, we found that although the high-wage players put less pressure on local environmental quality, their choices ultimately were quite close to their Nash best-responses. On the other hand, the low-wage players showed significantly more restraint relative to their Nash best-responses. Thus, the restraint necessary for these groups to achieve better-than-Nash equilibrium outcomes came largely from the low-wage subjects. Furthermore, by calculating individuals’ foregone payoffs from not playing pure Nash strategies, we found that the low-wage players were, on average, willing to bear significantly greater opportunity costs than their richer counterparts to help their groups achieve better-than-Nash equilibrium outcomes.
Face-to-face communication only enhanced the willingness of the low-wage subjects to bear the costs of moving their groups to more efficient outcomes. In fact, this was the main effect of communication, since through these rounds of the experiment the high-wage subjects stuck close to their Nash best-responses. Not surprisingly, these groups fared much better when they were allowed to communicate between rounds than when they were not.
Not only do our results suggest that economic asymmetry plays an important role in the manner in which groups share the burden of achieving better-than-Nash equilibrium outcomes, they also suggest that heterogeneity may have an important role in determining aggregate outcomes that go unrecognized in models of purely self-interested provision of a public good. Even though aggregate levels of exploitation of the local forests were predicted to be the same for both treatments, the groups with unequal market wages put significantly less pressure on local environmental quality than the groups with symmetric market returns. While the subjects in our symmetric treatment also did not choose pure Nash strategies, and achieved better outcomes in doing so, on average they did not assume as large a burden of moving their groups to more efficient outcomes as the low-wage subjects in the asymmetric treatment did for their groups. Consequently, the heterogeneous groups consistently enjoyed higher levels of environmental quality than their homogeneous counterparts.
Section snippets
Experimental design
As noted in the introduction, we designed our experiments to confront our subjects with a local environmental quality problem that would closely mimic their actual experiences. Toward that end, our field experiments were undertaken in three rural areas in Colombia where villagers have significant interests in local natural resources and environmental quality. Payoffs for the games were generated from a model of individual efforts to collect firewood from local forests. Higher levels of effort
Results
We begin the analysis of the experimental data by considering average choices of time spent harvesting firewood. Fig. 1 and the first block of rows in Table 4 summarize these decisions. As indicated earlier, we ended the first and second stages at different points so that the subjects could not anticipate the terminal rounds. All groups played 8–11 rounds in the first stage, within which they were not able to communicate with each other. We, therefore, consider only the first eight rounds of
Concluding remarks
This study strongly suggests that any examination of the effects of economic inequality on the provision of shared environmental quality in rural communities of the developing world should recognize two modes of burden-sharing. The first, which derives from hypotheses of Olson (1965) and Bergstrom et al. (1986), focuses on the question of whether it is the more- or less-advantaged members of a community who are likely to put less pressure on the local environment. Our modification of this
Acknowledgements
Financial support for the field work was provided by the MacArthur Foundation, the Instituto de Investigacion de Recursos Biologicos Alexander von Humboldt, the WWF Colombian program, and Fundacion Natura-Colombia. In the US, the research was supported by the Cooperative State Research, Extension, Education Service, US Department of Agriculture, Massachusetts Agricultural Experiment Station, under Project No. 799, Manuscript No. 3298, and by a Resources for the Future dissertation grant. We are
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