1 Environmental protection – in how far does “setting a good example” matter? Hans J Czap and Natalia V Ovchinnikova St. Lawrence University IAREP/SABE World Meeting September 2008 LUISS Roma, Italy

2 Acknowledgement We would like to thank the students who helped develop and run this experiment: –Bryanne Bowman –Jessica Mott –Tiffany Spoors

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4 Background Global Warming –Widespread concern Provision of public goods –Free rider problem

5 Standard structure of public good games Simultaneous movement Nash equilibrium at zero contribution Socially optimal contribution at 100%

6 Motivation Limited research on the role of leadership in the provision of public goods. Revealed willingness-to-pay for the environmental public good

7 Literature on the effect of leadership Romano and Yildrim (2001) –Simultaneous vs. sequential Andreoni and Petrie (2004) –Announcing contribution and identifying subjects increases contributions Potters et al. (2001, 2007) –Leaders provide signal about quality Hoel (1991) –Unilateral emission reduction leads to lower total emissions Moxnes and van der Heijden (2003) –Public bad experiment; sacrifices by the leader motivate followers, but not enough

8 Key characteristics of our environmental public good game Contribution to the EPG does not potentially increase players profit Social optimum is considered in the global sense – no local benefits Leader provides “good” and “bad” examples There is a feedback loop from the followers to the leader Contextualized experiment

Experimental design 9

10 Experimental context Farmer in the Northeast Participate in carbon sequestration projects –Generate carbon offsets Carbon offsets can be –Sold on the Northeast Climate Exchange (NCX) –Sold to the Conservancy Project (CP) –Donated to the Conservancy Project Prices paid by NCX and CP Av. earnings selling to CP = = ½ Av. earnings selling on NCX

11 Experimental design 120 undergrad students from St.Lawrence University 4 experimental treatments LeaderNo-Leader Info 6 groups x (1 leader and 4 followers) 6 groups x 5 players No-Info 6 groups x (1 leader and 4 followers) 6 groups x 5 players

12 Environmental public goods game (EPG) Sequence of play –Step 1: Leader’s decision (Leader condition only) –Step 2: Followers’ decisions –Step 3: Information disclosure (Info condition only) Variable of interest: contribution to the EPG –Amount of offsets SOLD to the Conservancy Project –Amount of offsets DONATED to the CP

Experimental results 13

14 Av. prop. of offsets sold and donated to the CP

15 Followers’ decisions Random effects for Subjects and Groups Akaike Info criterion: Eq.1: 4958 and 5072 Eq.2: 4813 and 4057 InfoNO-Info Equation1. DV: Sld_CP (Intercept) ***33.732*** Price_CP 8.707***11.490*** Price_NCX ***-9.632*** RndNmb Dnt_CP *** Dnt_CP(-1) Sld_CP(-1) Av_Dnt_CP(-1) Av_Sld_CP(-1) Dnt_CP_Ldr ** Sld_CP_Ldr 0.342***0.421*** Equation2. DV: Dnt_CP (Intercept) ***10.181*** Price_CP 1.666**0.516 Price_NCX ***-1.587*** RndNmb 0.147*-0.116** Sld_CP *** Dnt_CP(-1) 0.177***0.049 Sld_CP(-1) Av_Dnt_CP(-1) Av_Sld_CP(-1) Dnt_CP_Ldr 0.374***0.329*** Sld_CP_Ldr 0.079*** *- sig. at 10%, ** - 5%, *** - 1% level

16 Leaders’ decisions Random effects for Subjects Akaike Info criterion: Eq.1: 2603 and 1334 Eq.2: 1974 and 944 Info & No-InfoInfo Equation1. DV: Sld_CP (Intercept) ***32.039*** Price_CP ***14.880*** Price_NCX *** *** RndNmb Dnt_CP Dnt_CP(-1) Sld_CP(-1) Av_Dnt_CP(-1) Av_Sld_CP(-1) D_Info Equation2. DV: Dnt_CP (Intercept) ***7.152*** Price_CP Price_NCX *** RndNmb Sld_CP Dnt_CP(-1) 0.114**0.072 Sld_CP(-1) Av_Dnt_CP(-1) Av_Sld_CP(-1) 0.049* D_Info *- sig. at 10%, ** - 5%, *** - 1% level

17 Leader vs. other players Random effects for Subjects and Groups Akaike Info criterion: Eq.1: and 7829 Eq.2: and 6537 Info & No-InfoInfo Equation1. DV: Sld_CP (Intercept) ***29.986*** Price_CP ***15.988*** Price_NCX *** *** RndNmb Dnt_CP ***-0.273*** Dnt_CP(-1) 0.080*0.147** Sld_CP(-1) ** Av_Dnt_CP(-1) 0.313*** Av_Sld_CP(-1) * D_Leader D_Info Equation2. DV: Dnt_CP (Intercept) ***16.099*** Price_CP 1.040***0.618 Price_NCX ***-2.179*** RndNmb ***-0.119** Sld_CP ***-0.069*** Dnt_CP(-1) Sld_CP(-1) * Av_Dnt_CP(-1) 0.120** Av_Sld_CP(-1) D_Leader D_Info *- sig. at 10%, ** - 5%, *** - 1% level

18 Conclusions On average 30% of offsets were allocated to the environmental agency –74% sold, 26% donated Amount of offsets sold to the environmental agency –Negatively correlated with the price offered at the Climate Exchange –Positively correlated with the price offered by the environmental agency Amount of offsets donated to the environmental agency –Relationship to both prices was similar to the above, however smaller in magnitude RECALL: no local benefits of contributing to the EPG

19 Conclusions Leader’s decision impacted followers significantly and mostly positively –Followers did follow the leader and in some cases even tried to outdo her Leaders demonstrated “bad” and “good” examples Followers’ decisions had little effect on leader’s behavior –Leader’s contributions to the EPG were similar to those made by players in No-Leader condition Followers were more sensitive to leader’s decisions than to the decisions of other group members

20 Thank you