Abstract
We study repeated water allocation decisions among small scale irrigation users in Tanzania. In a treatment replicating water scarcity conditions, convexities in production make that substantial efficiency gains can be obtained by deviating from equal sharing, leading to an equity–efficiency trade-off. In a repeated game setting, it becomes possible to reconcile efficiency with equity by rotating the person who receives the largest share, but such a strategy requires a longer run perspective. Correlating experimental data from an irrigation game with individual time preference data, we find that less patient irrigators are less likely to use a rotation strategy.
Highlights
Livelihood systems that rely on a common pool resource are often confronted with an equity–efficiency trade-off
In a setting characterized by a scarce common resource that serves as an input into a convex production function, the optimal outcome in terms of aggregate production may be to allocate all resources to a single individual
The convexities in the production function means that distributing the common resource more between all users leads to significant aggregate welfare losses
Summary
Livelihood systems that rely on a common pool resource are often confronted with an equity–efficiency trade-off. The convexities in the production function means that distributing the common resource more between all users leads to significant aggregate welfare losses. We test if patience is a prerequisite for equity–efficiency optimizing distribution behaviour when agents have social preferences and rely on a convex production technology. If agents are identical and make alternating offers, equilibrium distributions approach equality as impatience diminishes (Rubinstein, 1982) Experiments that test these models find some support, and note a countervailing tendency that favours fair outcomes (Binmore, Swierzbinski and Tomlinson, 2007).
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