WEAI/AERE 2012 - Individual Paper Abstract
Title: Climate Change as a Social Dilemma
Author(s): Dana JACKMAN, School of Natural Resources and Environment, University of Michigan, 714 Indianola Avenue, Ann Arbor, MI 48105, USA, 734-904-5498, jackman at umich dot edu
Abstract:
Most policies to reduce climate change do not take into account the variety of ways that individuals decide what to consume and how much. The gap between climate policy and real-world consumption decisions parallels a divide between how people are supposed to behave according to climate-economy models versus how people actually behave in social dilemma experiments. I explore this gap between climate change policies and the ways that individuals decide what and how much to consume.
Environmental economics has had a profound effect on the nature of climate change mitigation policies. These policies include an impressive diversity of market-based policies, while sharing a fundamental focus on market failures, property rights, and material incentives. Under the precepts of environmental economics, however, climate policies suffer some limitations. Specifically, climate mitigation policies are designed with perfectly rational actors in mind, even though most people are not rational in the strict economic sense; and these policies give little attention to social context, political feasibility, and the challenge of cooperation.
Through a synthesis of environmental economics, behavioral economics, integrated assessment, and a cross-disciplinary literature on cooperation and social dilemmas, I argue that climate change is a social dilemma and cooperation among individuals is critical to policy design, implementation, and sustainability. With cooperation as a new objective for economic policy, an important challenge for climate-economy modelers is to identify the motives—in addition to self-interest—that are at work in the context of a global climate change and how to incorporate those factors into parsimonious, policy-relevant models.
Social dilemma experiments demonstrate conditions under which cooperation can be achieved. These experiments reveal that in addition to self-interest, individuals care about others, people have different levels of regard for others, and proportions of different types (e.g. altruistic or selfish) correlate with aggregate outcomes. Studies also show that social norms can have remarkable power over aggregate outcomes. In addition, researchers demonstrate that the framing of decisions affects choices. Furthermore, material incentives and social motives interact in important ways that are not represented in most models.
With these findings in mind, I have developed a three-tiered modeling approach, consisting of mathematical, computational, and exploratory models. This paper represents the first phase of my work. In this paper, I develop a theoretical framework and mathematical model that extend current approaches to climate-economy models. I focus on individuals who are involved in a social-environmental dilemma and subject to an exogenous tax. I introduce two forms of social motives—social preferences and norms—into a standard utility optimization framework. I assume that individuals consume an aggregate good with an environmental component that they perceive in one of three ways: as a negative externality (i.e. people think like economists); as a public good (i.e. something people provide); or as an open access resource (i.e. something people take). I capture framing in the utility function using the mathematical structure of socialdilemma games combined with functional forms that represent loss aversion. Thus, under different perceptions of the aggregate good, but subject to the same tax on consumption, the mathematical models represent how individuals decide how much to consume. The result is a single analytical framework that links social dilemma experiments to decision making in the climate change context and in response to market-based interventions.
In summary, climate policies are dominated by market-based interventions that are unlikely to induce cooperation. My work is among the first efforts to incorporate the findings of social dilemma experiments and advances in behavioral economics into climate-economy models environmental economics. I develop a single analytical framework to represent both sides of two types of social-environmental dilemmas—the self-interested side and the social side of public goods and open access situations. The result is model of decision-making with far greater relevance to cooperation and the role of market-based policies in fostering (or undermining) cooperation than what currently dominates in climate-economy models.