Edited by John A. List and Michael K. Price
Chapter 10: A tale of two carrots: the effectiveness of multiple reward stages in a common pool resource game
Nowadays, the world is confronted with a variety of pressing environmental problems, including depletion of fisheries, tropical deforestation and biodiversity loss. At the heart of these problems is the lack of sufficiently well-defined or enforced property rights which tend to result in overexploitation of the resource under consideration. The benefits of extracting an extra unit of the resource are private, whereas its costs (for example the increased scarcity because of lower levels of regeneration) are borne by all agents involved. Absent cooperation, each individual resource user ignores the costs she imposes on other resource users, and hence, from a social welfare point of view, puts too much effort into resource harvesting. And this is observed to occur even if access to resources is limited to a specific group of individuals (such as a community). The combination of appropriation externalities and lack of individualized and sufficiently well-defined property rights provides a classic case for government intervention, but socially optimal resource management may also be achieved by means of cooperation among resource users.
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