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2014-02-17 | project

Experiments to test a bargaining game for reducing pollution

The purpose of this project is to test a bargaining game developed by Saborio-Rodriguez, Kwasnica and Shortle (2013) using experiments in a laboratory. In the game an environmental agreement to deal with water pollution is negotiated among three players located along a river. Negotiation leads to social optimum reduction in emission accompanied by a set of monetary transfers. Players succeed on internalizing the externality.

Each player payoff increases with more production and decreases with pollution created by local production and production upstream. The relationship between production and pollution in the game is similar to those in Pevnitskaya and Ryvkin (2013b). However, there are also important differences between Pevnitskaya and Ryvkin (2013b) and the game we will design. In particular, we will include four salient features of the bargaining game: (i) asymmetries among players, arising from their location along a river; (ii) communication; (iii) time discounting, and (iv) unanimity rule to accept an agreement.

There is a connection between this research proposal and experiments about multilateral legislative bargaining, based on Baron and Ferejohn (1989). Banks and Duggan (2000) extend Baron and Ferejohn (1989), who model players negotiating the appropriation of a public budget, to include a multidimensional decision set. Saborío-Rodríguez et al. (2013) apply the multidimensional game to a water pollution problem. The multidimensional nature of the game is instrumental to allow for an explicit exchange of pollution reductions for monetary transfers.

The analysis of the experimental results will be organized around three questions. The first is whether players will reach an agreement. The second is how long it takes to reach an agreement. The third is about the substance of the agreement: reduction in emission and monetary transfers. Experimental result will be compared with the non-delay stationary equilibrium of the theoretical game.

The bargaining game is an innovative approach to analyze agreements dealing with pollution in which the parties negotiate among them the terms of the agreement. For that reason, we believe this project contributes not only to the knowledge about the applicability of the bargaining game, but also to the practical, and policy driven discussion about regulation of water pollution.