Travellers dilemma (Ariel Rubenstein 2004) Imagine you are one of the players in the following two-player game: Each of the players chooses an amount between.

Travellers dilemma (Ariel Rubenstein 2004)

Imagine you are one of the players in the following two-player game:

Each of the players chooses an amount between $180 and $300

Both players are paid the lower of the two chosen amounts

Five dollars are transferred from the player who chose the larger amount to the player who chose the smaller one.

In the case that both players choose the same amount, they both receive that amount and no transfer is made.

How much would you choose?

www.csiro.au

Ex ante testing of carbon trading policies in the SA Murray Darling Basin

John Ward, Brett Bryan, Darran King, Neville Crossman

June 2007

Context The SA region of the Murray Darling Basin has seen over 80 years of land clearance and

agricultural production

Prominent signs of environmental degradation – Surface and ground Water, Water quality, Land, Biota

Government policy - Integrated Natural Resource Management

INRM plan based on resource condition targets and actions

SA MDB Integrated NRM targets are multi-objective and include:

• Biodiversity

• River Salinity

• Wind Erosion

Establish on-ground investment priorities for NRM actions on

private land

Evaluate the potential of market based Instruments

Research programme: calibrating multi-agent models for policy optimisation in the SA MDB

1. Identify and evaluate market based incentives to encourage revegetation

2. At the farm scale, estimate the economic viability and contribution to resource targets of biomass energy and carbon trading

3. Survey dryland farmers to elicit farming styles and describe relationships between current community attitudes and land management actions.

4. Use experimental economics to quantify behavioural responses by landholders to market incentives in revegetation decision environments

5. Use the survey and experimental data to calibrate a multi-agent dynamic simulation of revegetation actions over fifty years

6. Implement four simulation scenarios of revegetation policy which estimate carbon, natural resource and economic outcomes

7. Describe the relationships between policy variables and NRM and economic outcomes to inform policy making processes prior to implementation.

Economic Viability Carbon

Mallee community - €10 / tonne

Mallee community - €20 / tonne

Mallee community - €30 / tonne

Mallee community - €40 / tonne

Viable areas - €10 / tonne

Viable areas - €20 / tonne

Viable areas - €30 / tonne

Viable areas - €40 / tonne

One € = A$1.62

Economic Viability of Carbon

MALLEE COMMUNITY

Carbon Price (€/tonne)

10 20 30 40

Economic value Total NPV of viable areas ($)

0 12,466,048 337,643,473 1,113,873,635

EAE of viable areas ($/ha) mean (min, max)

0.0 (0.0-0.0)

7.54 (0.0-64.28)

30.77 (0.0-132.13

41.13 0.0-199.98)

Carbon sequestration

Viable total carbon production (tonnes/yr)

0 356,616 1,849,795 3,578,201

Biodiversity Total area of revegetation for biodiversity (ha)

0 115,793 768,933 1,897,763

Salinity Total salinity reduction (EC)

0.0 0.03 1.64 2.77

Wind erosion Total area of stabilised soils with high wind erosion potential (ha)

0 2,051 32,258 230,431

The quest for a behavioural epsilon:which version of “rational behaviour” to model?

Game theory: traveller's dilemma

0

1

2

3

4

5

6

7

ranges

Fre

qu

ency

Individual

Individual 3 5 2 0 1 6

180 181-294 295 296-298 299 300

H.economicus

H.reciprocans

H.psychologicus

Chi squared test of experimental cluster frequencies cf with survey sample= 0.659 (not sig dif α =0.05)

cluster 1

-1.6

-1.1

-0.6

-0.1

0.4

0.9

profit motivated

Innovators

PC Capital constrained

Environmental attitudeTradition

Time PC time available

social influence on decisons

cluster 2

-1.6

-1.1

-0.6

-0.1

0.4

0.9

profit motivated

Innovators

PC Capital constrained

Environmental attitudeTradition

Time PC time available

social influence on decisons

cluster 3

-1.6

-1.1

-0.6

-0.1

0.4

0.9

profit motivated

Innovators

PC Capital constrained

Environmental attitudeTradition

Time PC time available

social influence on decisons

cluster 4

-1.6

-1.1

-0.6

-0.1

0.4

0.9

profit motivated

Innovators

PC Capital constrained

Environmental attitudeTradition

Time PC time available

social influence on decisons

Frequency %

1 297 51.9

2 144 25.2

3 68 10.1

4 84 12.8

Total 593 100.0

Principle components factor analysis and hierarchical cluster analysis

socially influenced farmers innovative farm business managers

life style hobby farmers time and capital constrained conservation managers

Cluster spatial (centroid) distribution

RBi = Atti + Ii + Sni + PCi + Oppi + wBj

Where for land holder i:

RB: represents current revegetation behaviour

Atti: represents vector of attitudes

Ii: represents intended reveg action

Sni: represents influence of social norms on i decision making

PCi: represents a vector of perceived controls

Oppi: represents current opportunity cost

wj: represents decayed weighted influence of nearest neighbour j for behaviour and

w = 1/distance i-j

Experimental design and metrics

Carbon market treatments

Numerical decision information only

No visual cue

Decision information

Visual cue (map of all farm decisions)

Waikerie 1 session (10 periods)

1 session 1 session

Murray Bridge 1 session 1 session 1 session

Typical experimental farm 

Experimental decision Income /10 ha

carbon t/10ha

optimal $/10 ha @ $50 /t carbon

marginal change in income

marginal change in carbon

marginal value carbon $/t

traditional 1 1156 0 1156 0 0

biofuels 2 2063 0 2063 -907 0

biomass 3 771 7 1130 386 7 54

trad + native veg 4 578 15 1334 578 15 38

native veg 5 0 30 1511 1156 30 38

Experimental metricsIndividual and aggregate carbon productionIndividual and aggregate income: Player paymentsDecision makingMarket behaviour

Carbon trading experimental sessions

Farm decision making: visual cue (map) of all catchment decisions

Experimental results

0

10

20

30

40

50

60

70

80

90

de

cs

ion

fre

qu

en

cy

MB no map

MB map

WA no map

WA map

MB no map 0 22 14 17 57

MB map 0 12 13 8 77

WA no map 2 29 14 17 58

WA map 1 22 8 12 77

Decision 1 Decision 2 Decision 3 Decision 4 Decision 5

WA no info

0

1

2

3

4

5

6

7

8

9

1 2 3 4 5 6 7 8 9 10

period

Dec

isio

n f

req

uen

cy Decision 1

Decision 2

Decision 3

Decision 4

Decision 5

WA map

0

1

2

3

4

5

6

7

8

9

10

1 2 3 4 5 6 7 8 9 10

period

dec

isio

n f

req

uen

cy Decision 1

Decision 2

Decision 3

Decision 4

Decision 5

no map map increase no map map increaseWaikerie 3629 4442 22% 999 1011 1%Murray Bridge 3543 4349 23% 822 1048 27%

Carbon (tonnes) Income ($)

Dynamic simulations of SA MDB revegetation

Four farm scale decision making scenarios

Where an individual agent selects one cleared ha per annum to revegetate for a period of 50 years

Random

Lowest opportunity cost to highest

Highest biodiversity value to lowest

According to social diffusion.

If neighbour revegetates, then agent revegetates (influence is a decaying distance function)

assumes 5% are innovators and the probability of revegetation for all agents increases with time.

Dynamic decision outcomes: 50 years

Bringing empirically based behavioural data into NRM policy testing

1. Calibrate the social diffusion model based on empirical data

Higher initial levels of innovation (31% not 5% as previously assumed)

Quantify policy that includes dissemination of catchment wide decisions

Quantify variable learning capacities, responses and transaction costs of novel choices

Complement pre-existing norms and institutions

2. Effect on policy performance by targeting observed farming segments

Enumerate the effects of policy that matches the motivations of cluster segments: attitudinal and temporal sequencing

3. Ex ante modelling of policies that address the likely effects of global warming: addressing regional vulnerability and resilience

Waikerie carbon trading

Waikerie Session 124 no info Waikerie Session 127 Mapperiod 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 NN 1/distance period 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 Cluster

player 1 4 4 5 2 5 4 5 5 5 5 player 1 5 2 5 5 4 5 2 2 5 5 23 3 2 4 3 3 5 5 5 5 8 0.2500 5 5 5 5 5 5 5 5 5 5

player 2 5 5 2 4 2 5 2 2 2 2 player 2 2 2 2 2 2 2 2 5 2 2 44 5 5 2 5 2 5 2 2 5 3 0.1720 2 2 2 2 2 5 2 5 2 5

player 3 4 5 5 2 5 2 5 2 2 5 player 3 2 2 2 2 2 5 2 5 2 5 25 5 2 4 2 5 2 2 2 2 2 0.1720 2 2 2 2 2 2 2 5 2 2

player 4 5 5 5 5 5 5 5 5 5 5 player 4 5 5 5 5 5 5 5 5 5 5 25 5 5 5 5 5 5 5 5 5 5 0.5000 5 5 5 5 5 5 5 5 5 5

player 5 5 5 5 5 5 5 5 5 5 5 player 5 5 5 5 5 5 5 5 5 5 5 15 5 5 5 5 5 5 5 5 5 4 0.5000 5 5 5 5 5 5 5 5 5 5

player 6 2 2 2 2 2 2 2 2 2 2 player 6 5 3 3 3 3 3 3 3 2 25 5 5 5 5 5 5 5 5 5 4 0.2000 5 5 5 5 5 5 5 5 5 5

player 7 5 2 5 5 2 5 4 2 5 5 player 7 5 5 5 5 5 5 5 5 5 5 33 4 5 4 4 4 4 4 5 4 10 0.1561 4 4 2 4 4 4 4 4 4 4

player 8 3 3 2 4 3 3 5 5 5 5 player 8 5 5 5 5 5 5 5 5 5 54 3 3 3 2 3 5 5 5 2 9 0.3162 5 5 5 5 5 5 5 5 5 5

player 9 4 3 3 3 2 3 5 5 5 2 player 9 5 5 5 5 5 5 5 5 5 5 23 3 2 4 3 3 5 5 5 5 8 0.3162 5 5 5 5 5 5 5 5 5 5

player 10 3 4 5 4 4 4 4 4 5 4 player 10 4 4 2 4 4 4 4 4 4 4 35 2 5 5 2 5 4 2 5 5 7 0.1562 5 5 5 5 5 5 5 5 5 5

player 11 5 5 5 3 2 2 5 5 5 5 player 11 5 5 5 5 5 5 5 5 5 5 14 4 5 2 5 4 5 5 5 5 1 0.1644 5 2 5 5 4 5 2 2 5 5

player 12 3 5 3 5 1 4 3 3 1 4 player 12 5 5 4 1 5 5 3 4 5 5 13 4 5 4 4 4 4 4 5 4 10 0.1170 4 4 2 4 4 4 4 4 4 4

Murray Bridge carbon trading

Murray Bridge Session 130 no info Murray Bridge Session 132 Mapperiod 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 NN period 1 period 2 period 3 period 4 period 5 period 6 period 7 period 8 period 9 period 10 Cluster

player 1 4 4 5 5 5 5 5 5 5 5 player 1 5 5 5 5 5 5 5 5 5 5 15 5 5 5 3 5 5 5 5 5 8 0.2500 5 5 5 5 5 5 5 5 5 5

player 2 5 4 5 2 2 5 5 5 5 5 player 2 5 5 5 5 5 5 5 5 5 5 15 4 2 5 5 5 2 5 5 5 3 0.1720 5 5 5 5 5 5 5 5 5 5

player 3 5 4 2 5 5 5 2 5 5 5 player 3 5 5 5 5 5 5 5 5 5 5 45 4 5 2 2 5 5 5 5 5 2 0.1720 5 5 5 5 5 5 5 5 5 5

player 4 2 3 5 5 2 2 3 3 2 5 player 4 3 4 3 3 5 5 5 5 5 5 13 2 4 4 3 2 4 2 2 3 9 0.2231 3 4 5 4 3 5 4 3 5 5

player 5 player 54 0.5000

player 6 3 4 5 5 3 2 3 4 3 4 player 6 3 2 3 4 5 2 3 3 5 5 12 3 5 5 2 2 3 3 2 5 4 0.2000 3 4 3 3 5 5 5 5 5 5

player 7 5 5 5 5 5 5 5 5 5 5 player 7 5 3 5 5 5 5 5 2 2 23 2 5 3 4 4 4 2 2 4 10 0.1561 4 5 5 5 5 5 5 5 5 5

player 8 5 5 5 5 3 5 5 5 5 5 player 8 5 5 5 5 5 5 5 5 5 5 13 2 4 4 3 2 4 2 2 3 9 0.3162 3 4 5 4 3 5 4 3 5 5

player 9 3 2 4 4 3 2 4 2 2 3 player 9 3 4 5 4 3 5 4 3 5 5 25 5 5 5 3 5 5 5 5 5 8 0.3162 5 5 5 5 5 5 5 5 5 5

player 10 3 2 5 3 4 4 4 2 2 4 player 10 4 5 5 5 5 5 5 5 5 5 15 5 5 5 5 5 5 5 5 5 7 0.1562 5 3 5 5 5 5 5 2 2 2

player 11 2 4 5 3 2 5 4 5 2 5 player 11 2 5 4 2 3 5 2 5 4 3 14 4 5 5 5 5 5 5 5 5 1 0.1644 5 5 5 5 5 5 5 5 5 5

player 12 4 5 5 5 2 5 5 2 5 2 player 12 5 2 5 5 5 2 5 2 5 23 2 5 3 4 4 4 2 2 4 10 0.1170 4 5 5 5 5 5 5 5 5 5

Total recharge results

a a ac d cd e e

Dunnett’s T3 post hoc test: Homogeneity of variance (Levine statistic) p < 0.05; ANOVA coefficients: F (7, 142) = 98.600; p< 0.05; Treatment means with the same letter were not statistically different at =0.05

“Life is animated water” (Vernadsky 1986)

Email: [email protected]

Phone 83038685