Project Description
Intended Work and Expected Benefits
The intended work has two broad elements:
To apply the methods and results of experimental economics to increase the (voluntary) contributions to the Guyana REDD+ Investment Fund (GRIF).
Much work in experimental economics has been done on voluntary contributions to collectively consumed public goods such as the GRIF. As everyone could freely benefit from the mitigation efforts undertaken, often at great (opportunity) cost, by any one country or region, the GRIF has not grown beyond the initial one-off contribution by Norway. This element of the proposed work will represent an important theoretical application of experimental economics to the climate change mitigation effort, and practically, will offer an opportunity to design mechanisms and processes to increase voluntary contributions to the GRIF.
To design, conduct, and analyse laboratory experiments to enhance Guyana’s own capacity for low-carbon development.
The benefits are significant because problems such as environmental degradation, deforestation, pollution, fossil-fuel dependence, and ‘tragedy of the commons’ issues are pervasive despite updated legislation and regulations:
Many of these problems involve ‘social dilemmas’ where self-interest leads to socially inferior outcomes that even reduce individual well-being. To study this, public goods/Prisoners’ Dilemma experiments will be conducted to inform the design of formal mechanisms such as incentive schemes, institutions, and policies to solve the social dilemmas.
Many of these problems are also associated with entrenched behaviour and mutually reinforcing expectations and beliefs, different experiments based on coordination games will be conducted to inform norm-shifting policies.
Problems, Research Questions and Significance of Research
The proposed Research Project is organised around two basic problems:
1. Problem Statement: There has been no additional contribution to the GRIF, a multi-Contributor trust fund established for the financing of activities undertaken as part of the Government of Guyana's Low Carbon Development Strategy (LCDS), since it was set up with US$250 million contribution by Norway. This is not surprising given that non-contribution to financing the provision of public goods such as the climate change mitigation envisaged under the LCDS, is in fact an equilibrium: People and agencies will want to free-ride on the contributions of others and in the end no one (or few) will make any contributions.
Research Question: The challenge for the research is to determine, from the literature on the voluntary provision of public goods and from experiments, which elements of the GRIF/LCDS framework, including its marketing and communications programme, can be amended to enhance the incentives for potential contributors to invest in the GRIF, and therefore to finance Guyana’s climate change mitigation effort.
Significance of Research: Without additional voluntary contributions to the GRIF, Guyana will have to bear the cost of its climate change mitigation efforts by itself, even though the benefits are global; or alternatively it would have to reduce the scope of what is envisaged under the LCDS, to the possible detriment of its forests in particular. Additionally the pressure to create income and employment may lead to increased high-emission economic activity if the LCDS projects are not funded but Guyana must avoid the threat of deforestation and high-emission alternatives to elicit funding of the LCDS, a major moral hazard recognised in the climate change finance literature. The research to enhance the incentives to contribute to climate change mitigation offers a way out of this dilemma.
The research will also make important contributions to knowledge about climate change financing because the experimental economics literature on voluntary provision of public goods is extensive and growing. Thus the benefits of the research will not be limited to the funding of the LCDS but will enhance significantly the discussion of climate change financing. To our knowledge, the latter discussion has yet to draw on the experimental economics research, so the research will also be pioneering a new approach to climate change research that would include issues of market design and the design of auctions as potential solutions to the financing problem.
2. Problem Statement: Even as Guyana seeks to contribute to climate change mitigation by stabilising deforestation and forest degradation at the current low levels, it faces major challenges in transitioning to a low carbon economic path. Problems such as environmental degradation, deforestation, pollution, fossil-fuel dependence, and tragedy-of-the-common-type issues, are pervasive. The carbon footprint associated with current economic activities in agriculture, mining, industry, transportation and construction, while not known, is no doubt much higher than need be. All these problems involve an underlying social dilemma in which the collective interest of society and the self-interest of the individual are at odds. Economic incentives to pursue self-interest dominate considerations of the well-being of others both now and in the future, but lead to socially inferior outcomes, such as leaving Guyana’s economy on a relatively high-carbon growth path.
Research Question: The research challenge is to design and conduct experiments that will inform the design of mechanisms, incentives, institutions and policies to resolve these social dilemmas. While a lot of experimental research has been done on social dilemmas, most of it has been conducted in developed industrialised countries so this work is not immediately applicable to Guyana. A case in point for example is that Guyana has been making efforts to address these problems, mainly by enacting legislation that has worked in other countries. By our own experience in Guyana however, legislation and regulation alone cannot address these problems. This is because the pursuit of individual self interest often involves such large incentives that enforcement becomes difficult, enforcers become highly vulnerable (to bribery, harassment, etc.), and enforcement failures become the norm. When this happens, the self-regarding behaviour that gave rise to the social dilemmas in the first instance would itself become the norm. Self-regarding economic behaviour then becomes culturally entrenched, making the transition to a low carbon economy. This latter eventuality is analytically different from the underlying social dilemma, and its solution requires policies that effect a shift in social norms of behaviour or a “cultural shift.”
Significance of Research: The case for low carbon economic growth could be made ad nauseam, and new legislation and regulations advocated and even adopted, but transition to a low carbon economy would not be realised unless there is a good understanding of the underlying social dilemmas, the entrenched economic behaviour and the cultural norms that keep economies trapped in the status quo of high-emission activities. This remark is also relevant for industrialised countries. Hence the experimental approach that will be used in this Research Project will not only enable Guyana to implement the LCDS, but it will be of general benefit to the challenge of transitioning to low carbon economic growth. Moreover, while the dynamics of transition will not be addressed in the Research Project, it is quite likely that the incremental successes of the experimental approach would do much to facilitate the change process.