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Environment

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

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Part 1: Environmental Collective Action Problems

Part 2: Water Irrigation

Part 3: Overfishing

Part 4: Air pollution

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Part 1: �Environmental Collective Action Problems

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Collective action problems�

Collective action problems are widespread throughout environmental issues.

Individuals want to act selfishly in a way that would harm the environment, but groups would benefit from environmental protection.

Some examples:

Individuals want to do things that emit a lot of greenhouse gases, but society is better off with less climate change.
Individuals want to drive cars so as to get around faster, but driving causes more air pollution that harms the whole group. Additionally, driving can cause traffic jams, whereas public transit avoids traffic jams.
Individuals want to harvest scarce natural resources that are up for grabs, but society is better off if everyone avoids using too much of these resources.

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Other examples�

Examples of environmental problems:

Water irrigation
Water pollution
Air pollution
Deforestation
Overfishing
Habitat destruction (biodiversity loss)
Nonrenewable energy depletion (fossil fuels)
Etc.

All these environmental problems are collective action problems: there is a conflict between the individual interest and the group interest.

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Part 2: �Water Irrigation

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Collective action problem�

Collective action problem:

Individual interests: The upstream farmers exploit their positional advantage by overappropriating the available water resource in irrigating their less productive fields.
Group interests: The field irrigation is more productive for downstream farmers. As the group, farmers would be better off by cooperating.

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Water irrigation game�

Experiments #5 and #6:

Water irrigation game with no fee and with fee

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Water irrigation game�

Experiments #5 and #6:

Water irrigation game with no fee and with fee

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Potential solutions�

Holt et al. (2012) examine four potential solutions:

(1) Nonbinding communication.
(2) Binding bilateral bargaining.
(3) Resource allocation by auction.
(4) Resource allocation by imposition of an optimal appropriation fee.

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Part 3: �Overfishing

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Collective action problem�

Collective action problem:

Individual interests: Each fisher wants to catch a given fish before others so as to gain the property right to that fish, even if the fish are still young and small. As a result, this leads to the depletion of the resource, creating an economic deadweight loss.
Group interests: The group wants to reduce the deadweight loss.
This is also known as the tragedy of the commons (Hardin, 1968).

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Atlantic cod case�

The amount of cod captured spiked around 1960 due to innovations in detecting and capturing cod.
Between the mid-1970s and early 1990s, a series of poor management decisions and inadequate understanding of complex marine ecosystems led to the collapse of the cod fishery and long-term impacts on the northwest Atlantic ecosystem.

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Atlantic cod case�

There was a small increase in fish landings around 1978 following the Northwest Atlantic Fisheries Organization (NAFO)'s new program to manage fisheries by adopting fish capture quotas and determined minimum mesh sizes. But both attempts to increase landings were short-lived, and today landings are as low as they've ever been.

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Potential solutions�

1) Government regulation

Fishing quotas, bag limits, size limits
Licensing
Closed seasons
Creation of marine reserves
Removal of subsidies

2) Private ownership

Aquaculture (aquafarming)

3) Self-organization

Advocacy
Consumer awareness (changing norms)
Organizations (“The Maine Lobster Marketing Collaborative”)

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Potential solutions�

Revolution by Rob Stewart

https://www.youtube.com/watch?v=NABkyZ45RPg

�

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Part 4: �Air pollution

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Collective action problem�

Collective action problem:

Individual interests: A firm wants to maximize profit without considering environmental consequences. Because the firm does not pay for the harm caused to the other firms and individuals, it will pollute.
Group interests: The group wants to reduce pollution.

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Potential solutions�

International agreements:

Since 1992, global collective action on climate change has been promoted via the United Nations Framework Convention on Climate Change (UNFCCC). Each nation sends representatives to treaty negotiations once a year.
In 1997, the UNFCCC meeting was in Kyoto. This meeting resulted in the Kyoto Protocol, a treaty signed by most countries (but not the United States) that was aimed at reducing emissions between 2008 and 2012. It was largely unsuccessful.
A key shift in climate diplomacy occurred at the 2015 meeting in Paris. Signatories to the Paris Agreement agreed to set country specific greenhouse gas reduction targets.

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Potential solutions�

1) Government regulation

Setting emissions standards
Indirectly limiting outputs or inputs of production that causes emissions
Taxing pollution with emission fees

2) Private ownership

EPA emission trading

3) Self-organization

Awareness
Advocacy
Voluntary environmental programs

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Emission trading�

Emissions trading, sometimes referred to as “cap and trade” or “allowance trading,” is an approach to reducing pollution.

Two key components:

(1) A limit (or cap) on pollution.
(2) Tradable allowances equal to the limit that authorize allowance holders to emit a specific quantity of the pollutant.
The limit (1) ensures that the environmental goal is met and the tradable allowances (2) provide flexibility for individual emissions sources to set their own compliance path through emission trading.

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References�

Hardin, G. (1968). The tragedy of the commons. Science, 162, 1243-1248.
Holt, C. A., Johnson, C. A., Mallow, C. A., & Sullivan, S. P. (2012). Water externalities: tragedy of the common canal. Southern Economic Journal, 78(4), 1142-1162.