Date of this Version
Cornhusker Economics (May 2011)
The problem of shared resources, especially Common Pool Resources (CPRs), has been studied extensively. In such cases (e.g. aquifers), if the users are driven solely by self-interest and do not cooperate/coordinate their actions, over-extraction occurs. However, over the years many researchers (e.g. Ostrom, 2010) have found that users are not always driven solely by self-interest, and often manage to prevent the overuse of resources through self-regulation, tempering their self-interest. Similarly, while the use of other shared resources such as water in rivers and creeks and the atmosphere may not lead to over-extraction, a variety of “downstream” problems can arise, as exemplified in poor quality of water in a downstream lake. Importantly, if the upstreamers temper their behavior through empathetic considerations, they will reduce the problem by undertaking costly actions. This situation raises two interesting empirical questions. First, is there a difference in behavior of the upstreamers if their decision is framed as a decision regarding profit maximization with resulting pollution, versus if their decision is framed as a costly decision on avoiding pollution. Second, whether downstreamers can potentially influence the behavior of upstreamers through the use of non-monetary sanctions (e.g. positive/negative word-of-mouth, display of social (dis)approval, etc.).