Theme A: Thresholds
In this part of the project, we study how the existence and experience of a tipping point, or catastrophic threshold, may affect cooperative behavior.
Project 1: Threatening Thresholds?
Author: Florian Diekert
Abstract: This paper presents a tractable dynamic game in which agents jointly use a resource. The resource replenishes fully but collapses irreversibly if the total use exceeds a threshold. The threshold is assumed to be constant, but its location may be unknown. Consequently, an experiment to increase the level of safe resource use will only reveal whether the threshold has been crossed or not. If the consequence of crossing the threshold is disastrous (i.e., independent of how far the threshold has been exceeded), it is individually and socially optimal to update beliefs about the threshold's location at most once. The threat of a disastrous regime thereby facilitates coordination on a “cautious equilibrium”. If the initial safe level is sufficiently valuable, the equilibrium implies no experimentation and coincides with the first-best resource use. The less valuable the initial safe value, the more the agents will experiment. For sufficiently low initial values, immediate depletion of the resource is the only equilibrium. When the regime shift is not disastrous, but the damage depends on how far threshold has been exceeded, experimentation may be gradual.
Status: Published in the Journal of Public Economics, 2017, vol 147, pp30-49. Link to journal article: http://dx.doi.org/10.1016/j.jpubeco.2017.01.004 Link to institutional repository: http://urn.nb.no/URN:NBN:no-64988
Project 2: Groups discipline resource use under scarcity
Authors: Florian Diekert, Kjell Arne Brekke
Abstract: In this project we investigate the consequence of crossing a tipping point, acute resource scarcity on individuals and on groups. To this end we replicate and adapt the experimental design of Shah, Mullainathan and Shafir (Science 338(6107): 682-685). We show that scarcity leads to “tunnelling” whereby decision makers focus on the short-term needs at the expense of long-term management. This is true for both individuals and groups. However, the negative effect of scarcity is weaker for groups than for individuals. Even in our minimal design that excludes direct interaction or communication, the fact that participants know that their own behavior affects another participant disciplines their use of scarce resources. Our results thus highlight the benefit of groups as units of human organization.
Status: Submitted; manuscript available on request: Write to email@example.com
Project 3: The nature of experience project
Authors: Florian Diekert, Timo Goeschl, Christian König
Abstract: Both strategic and natural uncertainty (risk) determine whether agents receive an economic reward in many environments. Moreover, many environments require repeated decisions. When periods are stochastically independent, do agents respond to an adverse outcome? And does it matter for their response whether the strategic or the natural uncertainty materialized to cause the event?
Status: In progress.
Project 4: Early Warning Signals
Authors: Florian Diekert, Daniel Heyen, Frikk Nesje, Soheil Shayegh
Abstract: Many dynamic systems exhibit tipping points – they fundamentally change their character once a critical value, or threshold, is crossed. The location of such thresholds is typically unknown. In this project, we consider a resource economic model where an infinitely lived agent can learn about the location of threshold. The utility of the agent is increasing in consumption. The threshold is catastrophic, however, since the resource collapses if consumption exceeds the threshold. At each point in time, the agent chooses how much to increase consumption. This enables two types of learning. First, if the resource does not collapse, the agent learns that the threshold is located at higher consumption. This leads to successive experiments being increasingly cautious. Second, the possibly to obtain informative signals on the location of the threshold through consumption gives an additional incentive to experiment. Counterintuitively, the presence of such “early warning signals” can make experiments more risky.
Status: In progress
Project 5: Climate economics support for the UN climate targets
Authors: Martin Hänsel, Moritz Drupp, Daniel Johansson, Frikk Nesje, Christian Azar, Mark Freeman, Ben Groom, Thomas Sterner
Abstract: The central contribution is to show how the temperature limits of the UN Paris Climate Agreement can be reconciled with the optimal 3.5°C increase arising from Nobel Prize winner William Nordhaus’ best-guess parameterization of the prominent DICE model. In sum, we show that the Paris targets represent an economic optimal within the DICE model. This is a surprising result since, according to Nordhaus’ Nobel Prize Lecture, a temperature limit well-below 2°C is either unattainable or places an unfair burden on the current generation. The Nobel committee was well aware that the precise conclusions that Nordhaus draws from DICE are highly sensitive to specific assumptions and accordingly stated that this year’s Laureate does “not provide final answers”. We build on this point by arguing that the adjustments from recent climate and economics research close the gap between Nordhaus and the Paris Agreement. Related to NATCOOP, we consider two updates to economic damages associated with temperature increases.
Status: Published in the Nature Climate Change, 2020, vol 10, pp781-789. Link to journal article: https://www.nature.com/articles/s41558-020-0833-x. Link to institutional repository: http://eprints.lse.ac.uk/105699/.