Collective risk-taking in the commons

Olivier Bochet, Jeremy Laurent-Lucchetti, Justin Leroux, Bernard Sinclair-Desgagné

    Research output: Contribution to journalArticle

    Abstract

    The management of natural commons is typically subject to threshold effects. If individuals are risk-averse, some of the recent economic literature holds that uncertainty on the threshold may have a positive impact by lowering incentives to over-consume. The paper shows that, this intuitive result may unravel when uncertainty is modeled as a discrete or multimodal distribution. Using a variant of the Nash demand game with two thresholds, two types of Nash equilibria typically coexist: cautious (respectively, dangerous) equilibria in which agents coordinate on the low threshold (resp. the high threshold). When both types of equilibria coexist, the symmetric dangerous equilibrium is always Pareto dominated by the symmetric cautious equilibrium, and the latter is always Pareto efficient. We use an experimental setting to assess the severity of the coordination and equilibrium selection problem. While cautious (resp. dangerous) play is decreasing (resp. increasing) in the probability that the threshold is high, coordination failures are salient for intermediate probabilities where the likelihood of coexistence of both type of equilibria is high. We find that there is a U-shaped relationship between overall coordination and the probability that the threshold is high.

    Original languageEnglish (US)
    Pages (from-to)277-296
    Number of pages20
    JournalJournal of Economic Behavior and Organization
    Volume163
    DOIs
    StatePublished - Jul 1 2019

    Fingerprint

    Risk taking
    Pareto
    Uncertainty
    Equilibrium selection
    Risk-averse
    Severity
    Economics
    Coordination failure
    Coexistence
    Threshold effects
    Incentives
    Nash equilibrium
    Nash demand game

    Keywords

    • Common-pool resources
    • Nash demand game
    • Uncertain thresholds

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Organizational Behavior and Human Resource Management

    Cite this

    Bochet, O., Laurent-Lucchetti, J., Leroux, J., & Sinclair-Desgagné, B. (2019). Collective risk-taking in the commons. Journal of Economic Behavior and Organization, 163, 277-296. https://doi.org/10.1016/j.jebo.2019.04.011

    Collective risk-taking in the commons. / Bochet, Olivier; Laurent-Lucchetti, Jeremy; Leroux, Justin; Sinclair-Desgagné, Bernard.

    In: Journal of Economic Behavior and Organization, Vol. 163, 01.07.2019, p. 277-296.

    Research output: Contribution to journalArticle

    Bochet, O, Laurent-Lucchetti, J, Leroux, J & Sinclair-Desgagné, B 2019, 'Collective risk-taking in the commons', Journal of Economic Behavior and Organization, vol. 163, pp. 277-296. https://doi.org/10.1016/j.jebo.2019.04.011
    Bochet O, Laurent-Lucchetti J, Leroux J, Sinclair-Desgagné B. Collective risk-taking in the commons. Journal of Economic Behavior and Organization. 2019 Jul 1;163:277-296. https://doi.org/10.1016/j.jebo.2019.04.011
    Bochet, Olivier ; Laurent-Lucchetti, Jeremy ; Leroux, Justin ; Sinclair-Desgagné, Bernard. / Collective risk-taking in the commons. In: Journal of Economic Behavior and Organization. 2019 ; Vol. 163. pp. 277-296.
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