This research analyzes the applicability of marketable permits for managing common- pool resources (CPRs), in particular, the atmosphere. Marketable permits transform CPRs into private goods, thereby facilitating the use of market processes for regulating their use. The existing literature examines CPR markets from two perspectives: it either compares them to a command and control approach or to a (theoretical) perfectly competitive market. The first approach assumes that since CPR markets will not suffer from information problems or transaction costs, they will be more efficient than command and control policies. The second approach relying on experimental work compares a given CPR market to a theoretically perfect market and examines the impact of market structure and trading rules on the performance of the CPR market. It offers useful insights about the sources of transaction costs in CPR markets, specifically insecure property rights and the high costs of obtaining information about potential trading partners.
This study builds on the above approaches and focuses on the factors that affect the performance of potential greenhouse gases markets. Unlike previous studies that focus predominantly on a single CPR market, this research examines multiple CPR markets.
I focus on the following markets: sulfur dioxide emission allowance trading, CFCs production and consumption permits, local groundwater markets, lead permit trading, early EPA emission trading, and wetlands mitigation banking.
The IAD framework is employed to examine the factors that affect market performance that is operationalized with multiple indicators: environmental effectiveness, the number of trades, the volume of trades, and the dispersion of prices around the market clearing price.
Factors affecting market performance can be classified into four categories:
(1) CPR characteristics affecting resource “measurability.” These are: predictability of the CPR stocks, availability of reliable indicators of resource flows, spatial extent of the resource, and effects of the resource use on the resource stocks (uniform versus non-uniform).
(2) Characteristics of the CPR users. If a small number of resource users appropriate a large proportion of the resource, the institutional arrangements regulating resource use are more likely to be developed and well-functioning. The most important characteristics of the regulated resource users are their numbers and their cost-minimizing behavior. If the regulated CPR users are not cost-minimizers, they are less likely to trade. The larger the number of the regulated users, the more likely they will be able to find a trading partner and the more likely that brokers will enter the market.
(3) The external legal and regulatory environment impacts constitutional choice-level rules in all CPR markets. In some cases, it also impacts collective choice- and operational choice-level rules. If the external regulations allow resource users to create rules for resource management, they will be more familiar with them, thereby more likely to trade the permits.
(4) Rules regulating the CPR use and users. Three types of rules regulating the CPR use are of particular importance; rules determining the severity of resource use limitation, rules regulating how the CPR is transformed into a private good (permit), and rules regulating exchangeability of permits. These rules impact the value and the security of the permits, thereby affect the incentives for trading. The most important rules pertaining to the CPR users are those that determine who is regulated, and how the non-regulated resource users could opt-in. If a large proportion of the resource users is not regulated, the environmental effectiveness of these markets may be significantly lower. Rules determining which CPR users are regulated may cause significant "leakage" of the CPR use from the regulated to the non-regulated users. The decision about who is allowed to opt-in for resource management also impacts the environmental effectiveness. Rules determining who is regulated impact the number of regulated resource users. The larger the number, the more likely potential partners will find their counterparts and the more likely brokers will enter the markets. This could significantly reduce the exchange costs, thereby improving the market performance.
1. "The Indirect Evolutionary
approach to Explaining Fair Allocations"
2. "Learning to Like What You Have"
3. "Local Control: An Educational Model of Private Enforcement of Public Rules"
For a long time economics has disregarded the issue of endogenous or evolving preferences. This has changed during the last decade. I will give a brief overview about contributions stemming from evolutionary game theory with a special emphasis on how the issue of endogenous preferences relates to experimental findings.
Until recently, scholars busied themselves studying public administration from the point of view of “orthodox” public administration alone, and in this regard, emphasis was laid on the state-run administrative machinery. Issues such as definition, scope, identity of public administration topped the agendas of these scholars (Wilson, 1887; Dahl, 1947; Dunsire, 1973; Heady, 1966; Davis, Jr., 1974; Henry, 1986; Adamolekun, 1983: 1). In addition to these basic items, the issues of the responsibilities and functions of public administration have been addressed by the following scholars: Almond and Powell (1966), Fred Riggs (1964: 7-10), James L. Perry (1989), D. Waldo (1980: 66), H. Kaufman (1969), Y. Willbern (1954), H. Walker (1937: 8), J. W. Whorton and J.A. Whorthley (1981).
This approach, which emphasizes the study of state-run administration alone, has been challenged by other scholars who consider this as too unidirectional and narrow. To these other scholars, a broader view of the study of public administration was desirable, because there are other institutional arrangements outside the framework of state-run administration that perform similar functions as the latter. In essence, these other institutional arrangements make contributions to governance and socio-economic development in their areas of location. These institutions are those created and managed by the people themselves (Simon, 9146; 53-67; Buchanan, 19697; Tullock, 1969; Ostrom 1969, 1989: 65-86).
The disappointing performance of state administration in governance and in the promotion of social and economic development (their “orthodox” roles), especially in the African countries, provides a ground for supporting the argument of the scholars of alternative institutional choice cited above. State-run institutional arrangements find it increasingly difficult to meet the basic needs of the people in African countries in particular. Therefore, suggestions for alternative institutions among the African people that should be capable of performing those roles that the state institutions have failed to perform are, therefore, in order. In the same vein, it is also desirable that a fresh approach be adopted to the study of public administration to incorporate the roles of those other institutional arrangements created and managed by the people. These institutions serve either as alternative choices to the state institutions or in specific occasions are regarded as complementary institutions.
This paper investigates the efforts of decentralizing crucial water management responsibilities from the state to two groups of water users; irrigation farmers and textile industrialists. The high transaction costs related to coordination and motivation within these entities of collective action are analyzed in relation to various political, social and economic institutions in the Indian society. Moreover, the aims of these local entities of collective action, and the process by which they gradually have shifted from aiming at external solutions towards internal ones are investigated. In the rural case, the new entities of collective action, even though receiving substantial state support to cover coordination costs, failed to replace existing clientilistic structures, and these continued to direct individual water management decisions in a fundamental way. In the urban case, however, a decisive, state-supported framing of new water management responsibilities to influential actors combined with a strong administrative capacity of user groups promoted the development of functioning entities of collective action. The paper discusses the roles played by the state in the two cases, and pinpoints that regional inter-sectoral conflicts over scarce water resources cannot be resolved simply by decentralizing responsibilities.Copies of her paper are available.
Dr. Leigh Tesfatsion, Professor of Economics and Mathematics, Department of Economics, Iowa State University, Ames, Iowa, will
be the speaker for the Workshop Colloquium on Monday, April 5, 1999. Her presentation is entitled Agent-Based Computational
Economics: Growing Economies from the Bottom Up. A brief summary of her presentation is provided below.
Agent-based computational economics (ACE) is roughly defined as the computational
study of economies modelled as
evolving decentralized systems of autonomous interacting agents. A key focus of ACE research is understanding how global
regularities arise from the bottom up, through the repeated local interactions of autonomous agents channeled through
socio-economic institutions, rather than from fictitious top-down coordination mechanisms such as imposed market clearing
constraints. In this talk I will first introduce the general ACE approach, with a particular stress on the modelling of agents
with internal cognitive structure. I will then illustrate the ACE approach more concretely in terms of an ACE labor market
framework I am currently using to study the formation and evolution of contractual networks among workers and
Additional ACE information can be obtained by accessing the ACE Web site, http://www.econ.iastate.edu/tesfatsi/ace.htm.
Dr. Hugh E. McWilliams Kelley, Postdoctoral Fellow, Psychology Department, Indiana University, will be the speaker for the Workshop Colloquium on Monday, March 29, 1999. His presentation is entitled “Behavioral country fund discounts: experimental and field evidence of bounded rationality.” An abstract of his paper is provided below.
A recurring controversy within the economics of uncertainty literature concerns the heterogeneous and boundedly rational nature of humans. Arrow (1982) provides a review of the literature and concludes that he and many others have made a case for the proposition that an important class of intertemporal markets show systematic deviations from individual rational behavior, and that these deviations are consistent with evidence from very different sources...'. One of the most influential theoretical applications of individual bounded rationality to economic theory is provided by DeLong, Shleifer, Summers, Waldmann (1990). These authors use overlapping generations methodology to model the persistent and variable discount observed between closed-end country funds and their underlying net asset value. This and later work postulate that randomly behaving or inertial noise agents may potentially distort equilibrium asset prices away from what rational agents would require. The current theoretical approach specifies multiple classes of boundedly rational representative agents who display under- and over-reaction to fundamental information based on earlier experimental work. At the market equilibrium these multiple classes of investors have heterogeneous expected returns for the country fund which are conditional on past market characteristics and news events. These heterogeneous expectations provide less than optimal demand for closed-end country funds which is reflected in the price of these mutual funds trading at a discount relative to their underlying assets. Some preliminary empirical tests of field data indicate that the experimentally based noise trader model can predict movements of some country fund discounts. International field market data for German, Eastern European, British, and Chilean country funds are considered.
Dr. Mark Baker from Arcata, CA will be the speaker for the Workshop Colloquium on Monday, March 22, 1999. His presentation
is entitled "Searching the Boundaries of CPR Theory: Explaining Persistence and Change within the Gravity Flow Irrigation Systems
(Kuhls) of Himachal Pradesh, India." An abstract of his talk is provided below.
Most of the gravity flow irrigation systems (kuhls) in the mountainous
state of Himachal Pradesh, India have persisted
despite recurring shocks from floods and earthquakes and a variety of stresses associated with recent unprecedented
increases in nonfarm employment. Understanding how most of these common property resource management systems
endure despite recurring shocks and stresses, and why some have collapsed, requires a mode of analysis which includes, a)
tracing and explaining the trajectory of change within individual kuhl irrigation systems, b) examining how networks
interdependent kuhl irrigation systems help to buffer individual kuhls from shocks and c) uncovering the multiple roles that
pre-colonial, colonial and post-colonial governments have played in kuhl construction and management. Analysis of social
relations within individual kuhls and the extent of dependence on a kuhl’s irrigation water suggests how and why increasing
nonfarm employment affects different kuhls in different ways. It also helps to account for the observed organizational
responses to those effects and their efficacy. However, only by expanding the frame of analysis to include exchange
relations between kuhls can we explain how they have persisted despite periodic destructive floods and earthquakes. And,
only by incorporating the role of the state in kuhl management can we account for the construction of some kuhl systems
and the persistence of others. Through the example of the kuhls of northern India, I suggest that we stretch the boundaries
of CPR theory to incorporate both the horizontal resource management practices in which a single CPR system may be
embedded and the vertical relations with supra-local authorities.
Many studies over the past ten years have suggested that it may be cost-effective to expand terrestrial carbon sinks, primarily forests, as part of a greenhouse gas mitigation strategy. The potential cost savings relative to a program that focuses solely on fossil energy sources of carbon dioxide could be substantial. The policy relevance of these conclusions was reinforced by the prominent position given to sinks under the Kyoto Protocol. However, very little attention has been paid to how a large- scale carbon sequestration program might be implemented. This talk will examine ways in which a carbon sequestration strategy is different than a sources approach and the challenges that those differences present. The presentation will also provide an alternative framework for examining the policy tools available to an implementing agency and draw preliminary conclusions about the most cost- effective way to implement a carbon sink policy in the United States. The talk demonstrates that there are both institutional and public finance issues that are often overlooked when discussing carbon sequestration policy. There will NOT be a paper for this presentation.
Although there appear universal features of folktaxonomic systems, how cultural group conceptualize relationships among various plants and animals may be much more variable. Folkecological models can be seen as mental models of resources. Furthermore, differences in mental models may mediate both practice and inter-group conflict associated with common-pool resources. This talk describes a case study of three groups in Peten, Guatemala, groups that differ in folkecologcial models and in agro-forestry practice. This work may bring a new, complementary perspective to the commons debate
This research involves an economic experiment examining "provision point" public goods. The provision point requires that a minimum threshold level of allocations to the public good be reached before the public good will be provided. Previous experimental research on provision point public goods has focused primarily on individual and group behavior in small decision-making groups. The experimental design used here provides for considering group size effects across both large and small groups. Decisions are analyzed in a one-shot environment. In addition to examining group size effects, the experimental design varies the level of the provision point and refund conditions. Multiple decisions for the same subject are observed. Analysis of the one-shot results involves the use of repeated measures analysis of variance to address interdependence of multiple observations for the same subject.
Interstate banking reform, which began in 1979 and culminated in the passage of the Reigle-Neal Interstate Banking and Branching Efficiency Act (IBBEA) in 1994, is an example of institutional change in a polycentric system. This particular reform is interesting from both practical and theoretical perspectives. It substantially alters the structure of the domestic commercial banking industry. It also represents a critical stage in restructuring and modernizing the U.S. financial system, complete until early in the next century. This reform also provides an interesting case for developing theories about regulation. This talk summarizes research in progress that seeks to advance an institutional theory of change that can be applied more generally to deepen our understanding of regulatory reform in strategically important industries in the U.S. A background paper, The Political Economy of Commercial Banking and Interstate Banking Reform, situates contemporary banking reform in historical and political-economic context.
Recent literature in Ethnomusicology has shown an increasing awareness of the issues surrounding copyright. Generally speaking, copyright is the foundation upon which the music business rests. Based on an artistic work-concept, but a narrowly defined, text-based nominal one, drawn from literature, copyright is predicated on specific premises relating to creativity, originality, and authorship. This particular formulation of the work-concept in copyright is well suited to the process of commodification within a capitalist system. However, recent scholarship has recognized of the inadequacy of copyright legislation in the context of traditional musics.
The work-concept in Irish traditional music, if it can be applied at all, is the tune as a consensus of practices, with the emphasis on process, variation, and individual contributions over time rather than the fixed product of individual authorship that copyright implies. The key to transmission in Irish traditional music is the idea of generosity, which is diametrically opposed to concepts of private property, commodification, and copyright, all of which place the transmission process itself under threat.
In this colloquium, I hope to show that it is useful in this context to use international research in the areas of Common Property and Traditional Resource Rights as a point of comparison. I shall outline my preliminary attempts to apply the IAD Framework to the Irish traditional transmission process, concentrating in particular on the "rules in use" or codes that support the transmission process. The interdisciplinary approach of this paper will hopefully underline the role of generosity as a crucial aspect in the tradition, and emphasize the political duties of researchers in the face of commodification and conceptual enclosure.
We will present an empirical analysis in progress of reasons for an increasing dominance of theater boxoffice and other video media throughout most of the world by American movie products. This increasing American dominance has intensified debates about cultural sovereignty and led to renewed attempts to impose quotas and other protectionist policies in many countries.
Since at least World War I, American movies have accounted for a major share of exhibition revenues in most countries. But since the 1970s, the United States' share of boxoffice revenues has steadily risen to often overwhelming levels, exceeding 80% in many countries, including the U.K. and Germany. This upward trend in American prevalence also characterizes television (especially pay TV) and prerecorded videocassettes.
Based on an economic model of international trade in media products, we present descriptive and cross-sectional statistical data, which show that relatively large and wealthy countries, including the U.S., account for disproportionately large shares of total world movie production. We then test the hypothesis that the American share of boxoffice revenues has risen since the 1970s because the United States has developed its domestic "infrastructure" of video media for movie exhibition (notably pay TV and videocassette distribution), at a more rapid rate than have other countries, leading in turn to a relatively more rapid increase in movie investments by American producers. The influence of media policies in the U.S. and Europe in this infrastructure development are apparent.
Results using a 1950-95 database of media industry development in the U.S. and four European countries generally support this hypothesis. A closer look at historical trends, however, indicates that our simple economic model offers an incomplete explanation of increasing American dominance. In addition to the economic factors, we will consider cultural, political, and other influences on these trends, and discuss public policy issues.
This paper examines the impact of French and British colonial institutions in Cote d'Ivoire and Ghana. Using the tools of principal agent theory, I identify and examine key differences between French and British rule. I then link these institutional differences to variations in subsequent patterns of property rights, landholding, and ultimately, class formation in each nation.
My analysis demonstrates that institutions matter. The link between institutions and outcomes is complex, however. Specifically, I argue that the impact of colonial institutions is contingent upon (1) the interaction between colonial and indigenous institutions, and the institutions' indirect effect upon societal actors (here, the chiefs' subjects); and (3) all actors' ability to evade and undermine colonial institutions.
The Department of Economics and the Workshop in Political Theory and Policy Analysis are pleased to announce that Professor R. Mark Isaac, Department of Economics, University of Arizona, will be the speaker for this Colloquium.
His presentation is entitled "A Theory of Risky Choice." An abstract of his paper [co-author Duncan James, University of California Santa Cruz and the University of Arizona] is provided below.
Risk aversion, viewed as an innate personal characteristic, is at best unobservable, and at worst nonexistent. In this paper, we present a theory of risky choice that can explain at least as much as existing theories and that does not need to posit innate "risk preferences" other than risk neutrality. This theory shows why classic, innate risk aversion need not exist and cannot be observed.
If "risk preferences" cannot, or at least need not, be invoked to explain choice, what would take their place? We propose as a substitute the following theory:To the extent that individuals have inherent risk characteristics,they are risk neutral. Departures in behavior from that implied by risk neutrality can be explained by two phenomena. First, the presence of constraints and contracts can induce an agent to make choices he would not otherwise make;that is, externally imposed or pre-existing contracts can induce behavior to be "risk seeking" or "risk averse."Second, the use of heuristics can generate data that appears to be "risk seeking" or "risk averse." This theory was not conceived in an armchair. Rather it is issued in response to new experimental data the authors have generated in the course of several, originally self-contained research programs. By construction, this theory fits new data that cannot be explained by old theories. Additionally, the above-mentioned research programs also provide the first out-of-sample test of our theory. Thus, while our theory is in a sense, "curve fitting," we also provide a test of our theory's usefulness.
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