Common Pool Resource Management at the Extensive and Intensive Margins: Experimental Evidence

Abstract

Policies aimed at managing common pool resources (CPRs) often target only one decision margin, despite the fact that the social efficiency of resource use is determined along multiple decision margins. For example, limited entry fisheries and irrigated land retirement programs focus only on influencing the number of agents engaged in resource extraction (the extensive margin), but ignore the quantity extracted by each agent (the intensive margin). This research uses empirical evidence from a laboratory economics experiment to examine the efficiency of incentive-based policies in a two-stage CPR game. Participants in the first stage decide whether to enter the CPR and in the second stage entrants choose an intensity of CPR use. Policy treatments vary the incentives at the intensive and extensive margins of resource use in a situation where social efficiency can only be maximized in theory through a combination of intensive and extensive-margin policies. We find that observed rates of CPR entry tend to be higher than predicted by theory, while the intensity of resource use is lower than predicted across the range of policy treatments. Although intensive- and extensive-margin policies improve social welfare, policies that target a single margin tend to reduce efficiency by impacting the incentives along the other decision margin. This is particularly true with the extensive-margin policy, which leads to the highest intensity of CPR use by entrants and the lowest observed efficiency among the policy treatments.