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Environmental protection – in how far does “setting a good

example” matter?

Hans J Czap and Natalia V OvchinnikovaSt. Lawrence University

IAREP/SABE World MeetingSeptember 2008

LUISS Roma, Italy

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Acknowledgement

• We would like to thank the students who helped develop and run this experiment:– Bryanne Bowman– Jessica Mott– Tiffany Spoors

Copyright @2008

Permission granted to reproduce for personal and educational use only. Commercial copying, hiring, lending is prohibited.

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Background

• Global Warming– Widespread concern

• Provision of public goods– Free rider problem

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Standard structure of public good games

• Simultaneous movement

• Nash equilibrium at zero contribution

• Socially optimal contribution at 100%

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Motivation

• Limited research on the role of leadership in the provision of public goods.

• Revealed willingness-to-pay for the environmental public good

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Literature on the effect of leadership• Romano and Yildrim (2001)

– Simultaneous vs. sequential

• Andreoni and Petrie (2004)

– Announcing contribution and identifying subjects increases

contributions

• Potters et al. (2001, 2007)

– Leaders provide signal about quality

• Hoel (1991)

– Unilateral emission reduction leads to lower total emissions

• Moxnes and van der Heijden (2003)

– Public bad experiment; sacrifices by the leader motivate followers, but

not enough

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Key characteristics of our environmental public good game

• Contribution to the EPG does not potentially

increase players profit

• Social optimum is considered in the global sense

– no local benefits

• Leader provides “good” and “bad” examples

• There is a feedback loop from the followers to the

leader

• Contextualized experiment

Experimental design

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Experimental context

• Farmer in the Northeast• Participate in carbon sequestration projects

– Generate carbon offsets

• Carbon offsets can be – Sold on the Northeast Climate Exchange (NCX)– Sold to the Conservancy Project (CP)– Donated to the Conservancy Project

• Prices paid by NCX and CP

Av. earnings selling to CP =

= ½ Av. earnings selling on NCX

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Experimental design

• 120 undergrad students from St.Lawrence University

• 4 experimental treatments

Leader No-Leader

Info 6 groups x

(1 leader and 4 followers)

6 groups x

5 players

No-Info 6 groups x

(1 leader and 4 followers)

6 groups x

5 players

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Environmental public goods game (EPG)• Sequence of play

– Step 1: Leader’s decision (Leader condition only)

– Step 2: Followers’ decisions

– Step 3: Information disclosure (Info condition only)

• Variable of interest: contribution to the EPG

– Amount of offsets SOLD to the Conservancy Project

– Amount of offsets DONATED to the CP

Experimental results

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0

10

20

30

40

50

60

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80

90

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25Round

# offsets sold to CP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Price difference

Info&Leader NoLeader&Info Leader&NoInfo NoLeader&NoInfo PriceNCX-PriceCP

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5

10

15

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25Round

# offsets donated to CP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5Price difference

Info&Leader NoLeader&Info Leader&NoInfo NoLeader&NoInfo PriceNCX-PriceCP

Av. prop. of offsets sold and donated to the CP

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Followers’ decisionsRandom effects for Subjects and Groups

Akaike Info criterion:

Eq.1: 4958 and 5072

Eq.2: 4813 and 4057

Info NO-Info

Equation1. DV: Sld_CP

(Intercept) 25.643*** 33.732***Price_CP 8.707*** 11.490***Price_NCX -6.197*** -9.632***RndNmb -0.113 -0.175Dnt_CP -0.227*** -0.106Dnt_CP(-1) 0.050 0.130Sld_CP(-1) 0.017 -0.021Av_Dnt_CP(-1) 0.123Av_Sld_CP(-1) -0.036Dnt_CP_Ldr 0.042 -0.222**Sld_CP_Ldr 0.342*** 0.421***

Equation2. DV: Dnt_CP

(Intercept) 16.087*** 10.181***Price_CP 1.666** 0.516Price_NCX -3.160*** -1.587***RndNmb 0.147* -0.116**Sld_CP -0.177*** -0.018Dnt_CP(-1) 0.177*** 0.049Sld_CP(-1) 0.009 0.007Av_Dnt_CP(-1) 0.081Av_Sld_CP(-1) -0.038Dnt_CP_Ldr 0.374*** 0.329***Sld_CP_Ldr 0.079*** -0.006

*- sig. at 10%, ** - 5%, *** - 1% level

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Leaders’ decisionsRandom effects for Subjects

Akaike Info criterion:

Eq.1: 2603 and 1334

Eq.2: 1974 and 944

Info & No-Info Info

Equation1. DV: Sld_CP

(Intercept) 35.274*** 32.039***Price_CP 15.499*** 14.880***Price_NCX -10.643*** -10.046***RndNmb -0.089 -0.175Dnt_CP -0.178 0.430Dnt_CP(-1) 0.179 0.044Sld_CP(-1) 0.017 -0.040Av_Dnt_CP(-1) 0.283Av_Sld_CP(-1) 0.069D_Info 2.120

Equation2. DV: Dnt_CP

(Intercept) 10.012*** 7.152***Price_CP -0.140 -0.780Price_NCX -1.241*** -0.492RndNmb 0.034 -0.067Sld_CP -0.017 0.023Dnt_CP(-1) 0.114** 0.072Sld_CP(-1) 0.023 -0.023Av_Dnt_CP(-1) -0.006Av_Sld_CP(-1)   0.049*D_Info -1.902

*- sig. at 10%, ** - 5%, *** - 1% level

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Leader vs. other playersRandom effects for Subjects and Groups

Akaike Info criterion:

Eq.1: 15581 and 7829

Eq.2: 13195 and 6537

Info & No-Info Info

Equation1. DV: Sld_CP

(Intercept) 33.040*** 29.986***Price_CP 15.286*** 15.988***Price_NCX -10.717*** -11.421***RndNmb 0.044 0.113Dnt_CP -0.303*** -0.273***Dnt_CP(-1) 0.080* 0.147**Sld_CP(-1) 0.026 0.103**Av_Dnt_CP(-1) 0.313***Av_Sld_CP(-1) -0.097*D_Leader 3.324 3.964D_Info -0.231

Equation2. DV: Dnt_CP

(Intercept) 17.089*** 16.099***Price_CP 1.040*** 0.618Price_NCX -2.318*** -2.179***RndNmb -0.093*** -0.119**Sld_CP -0.081*** -0.069***Dnt_CP(-1) 0.031 0.007Sld_CP(-1) 0.001 -0.034*Av_Dnt_CP(-1) 0.120**Av_Sld_CP(-1) 0.039D_Leader -1.572 -2.849D_Info -0.685

*- sig. at 10%, ** - 5%, *** - 1% level

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Conclusions • On average 30% of offsets were allocated to

the environmental agency– 74% sold, 26% donated

• Amount of offsets sold to the environmental agency – Negatively correlated with the price offered at the

Climate Exchange– Positively correlated with the price offered by the

environmental agency

• Amount of offsets donated to the environmental agency – Relationship to both prices was similar to the above,

however smaller in magnitude

RECALL: no local

benefits of contributing to the EPG

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Conclusions • Leader’s decision impacted followers significantly

and mostly positively– Followers did follow the leader and in some cases even

tried to outdo her

• Leaders demonstrated “bad” and “good” examples

• Followers’ decisions had little effect on leader’s behavior– Leader’s contributions to the EPG were similar to those

made by players in No-Leader condition

• Followers were more sensitive to leader’s decisions than to the decisions of other group members

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Thank you