Payments or persuasion: Norms, subsidies, and efficiency in a CPR experiment
We study the comparative effectiveness of three policy interventions in a lab experiment that models common pool resources. The interventions we examine are a Pigouvian subsidy, information provision, and an appeal to social norms. In this study we are concerned with inefficient use of the common pool resource, including either over- or under-extraction, as well as the comparative efficiency properties of the interventions. We consider the subsidy both with and without the efficiency costs of raising the subsidy funds.
Data/Methods
We investigate these policy interventions using a common pool resource game following Ostrom, Gardner, and Walker (1994). Subjects were randomly drawn from an existing undergraduate subject pool and in each session faced one of the experimental treatments. We then use both within-sample and across-sample variation to allow for a difference-in-difference analysis of both provision levels and efficiency levels in the different treatments. Finally, we use our experimental data and Monte Carlo methods to infer the break-even level of efficiency of public funds to determine which treatment has the strongest efficiency effects, inclusive of the efficiency cost of the subsidy.
Results
The subsidy successfully reduces over-extraction to close to the efficient level on average, but even groups that were not over-extracting are induced to extract less. Because the social optimum is interior, over-compliance reduces efficiency. Moreover, when the subsidy is removed, extraction reaches its least efficient level. Both information provision and normative appeals increase efficiency by reducing over-extraction without exacerbating over-compliance, although the reduction in extraction is much less than that seen with the subsidy. Some of the effect of normative appeals persists even after messages stop being sent. Net of estimates of the marginal cost of raising public funds to pay for a subsidy, the efficiency achieved by the two nonpecuniary treatments is comparable to that achieved by the Pigouvian subsidy.