The Opportunity Costs of Conservation with Deterministic and Probabilistic Degradation Externalities

Abstract

This experimental study examines variations in the opportunity cost of conservation in two linear appropriation games that include symmetric and asymmetric subject payoffs. In the first game, appropriation leads to deterministic degradation in the value of a shared resource. In the second game, appropriation leads to both deterministic and probabilistic degradation, introducing endogenous uncertainty in the value of the opportunity cost of conserving the shared resource. The results show that subjects systematically decrease appropriation the lower the opportunity cost of conservation, and the addition of probabilistic degradation leads to further decreases in group appropriation. As conjectured, the response of individual subjects to the addition of probabilistic degradation is conditional on their expected marginal net benefits to appropriate, which depend in turn on their first order beliefs of others’ appropriation. The overall decreases in appropriation due to probabilistic degradation, however, are not large enough to offset decreases in expected efficiency due to expected losses in the value of the shared resource.