Intergenerational Games with Dynamic Externalities and Climate Change Experiments

Abstract

Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers' actions may be shortsighted due to their limited incentives to care about the future generations' welfare. Second, even when the incentives are perfectly aligned across generations, increased strategic uncertainty of the intergenerational setting may lead to an increased inconsistency of * This research was supported by the University of Hawaii College of Social Sciences research grant and the Grant-in-Aid for Scientific Research on Priority Areas from the Ministry of Education, Science and Culture of Japan. We would like to thank the Editor, two anonymous referees, Timothy Halliday, Emmanuel Vespa, Alistair Wilson, and participants of the Economic Science Association meetings for many useful comments and suggestions.

Climate Change: Behavioral Responses from Extreme Events and Delayed Damages

“…Sherstyuk et al (2016) compares overlapping generations versus long-lived agents and reports that cooperation is harder to sustain for overlapping generations; Pevnitskaya and Ryvkin (2013) contrasts finite and indefinite horizons and find that participants learn to cooperate faster in the former setting, although they experience a last round drop; finally, Calzolari et al (2016) study pollution persistence in a dynamic setting and show that it does not hamper cooperation per se but report a declining trend of cooperation for higher stocks of pollution. The novelty in our experimental design is to decouple actions and their consequences on damages, which in most studies are instead associated and indistinguishable.…”

Climate Change: Behavioral Responses from Extreme Events and Delayed Damages

“…The experiments with a gradual impact of pollution on damages are relatively more recent. Sherstyuk et al (2016) compares overlapping generations versus long-lived agents and reports that cooperation is harder to sustain for overlapping generations; Pevnitskaya and Ryvkin (2013) contrasts finite and indefinite horizons and find that participants learn to cooperate faster in the former setting, although they experience a last round drop; finally, Calzolari et al (2016) study pollution persistence in a dynamic setting and show that it does not hamper cooperation per se but report a declining trend of cooperation for higher stocks of pollution. The novelty in our experimental design is to decouple actions and their consequences on damages, which in most studies are instead associated and indistinguishable.…”

“…They show considerable diversity in strategies, as we document in our analysis, and that successful strategies are "lenient" and "forgiving": unexpected actions are not immediately punished, with attempts to restore cooperation. Camera and Casari (2009) manipulate monitoring of individual 1 Another dimension of the damage function that we do not consider here is its intergenerational feature (Sherstyuk et al, 2016).…”

Carbon is Forever: A Climate Change Experiment on Cooperation

“…Two recent dynamic experiments on climate change are Pevnitskaya and Ryvkin (2013) and Sherstyuk et al (2016) that adapt the theoretical model of Dutta and Radner (2004) under an infinite horizon. These studies have a setup that is close to ours, although their focus is not on pollution persistence.…”

“…There exist only a handful of economic experiments with dynamic externalities (for instance, Battaglini et al, 2016) and the climate experiments most related to ours are Pevnitskaya and Ryvkin (2013) and Sherstyuk et al (2016).…”