Cornwell and Costanza 1994.pdf

8/10/2019 Cornwell and Costanza 1994.pdf

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E C O L O G I C L

E C O N O M I C S

E L S E V I E R Ecologica l Economics 11 ( 1994) 213-226

n e x p e r i m e n t a l a n a ly s is o f t h e e f f e c t iv e n e s s o f a n e n v i r o n m e n t a l

a s s u r a n c e b o n d i n g s y s t e m o n p l a y e r b e h a v i o r i n a s i m u l a t e d f i r m

Laura Cornwel l Robe r t Cos tanza

Ma ryland International Institute for Ecological Econom ics, Center or Encironm ental and Estuarine Studies, U nicersity (~f Maryland,

Solomons, MD 20688, USA

Received 30 March 1993; accep ted 4 Janu ary 1994

bs trac t

I t h a s lo n g b e e n r e c o g n i z e d t h a t t h e p r e s e n t c o m m a n d a n d c o n t r o l m e t h o d s f o r p o l l u t i o n a b a t e m e n t a r e

i n e f fi c i e n t. U s i n g m a r k e t m e c h a n i s m s f o r e n v i r o n m e n t a l m a n a g e m e n t i s a p r o m i s i n g a l te r n a t i v e t o t h e d i r e c t

r e g u l a t o r y a p p r o a c h . M a r k e t m e c h a n i s m s a r e j u s t b e g i n n i n g t o a p p e a r i n U .S . e n v i r o n m e n t a l p o l ic y . F o r e x a m p l e ,

t r a d a b l e p e r m i t s c h e m e s a r e b e in g d e v e l o p e d a n d i m p l e m e n t e d f o r s o m e a i r p o l lu t a n t s u n d e r t h e a m e n d e d C l e a n

A i r A c t . V a r i o u s o t h e r f o r m s o f t a x e s a n d t r a d a b l e p e r m i t s h a v e b e e n p r o p o s e d ; h o w e v e r , t h e s e s y s t e m s d o n o t

a d d r e s s t h e l a r g e u n c e r t a i n t y i n h e r e n t i n m o s t e n v i r o n m e n t a l p r o b l e m s . O n e m e c h a n i s m c u r r e n t l y b e i n g s t u d i e d t o

a d d r e s s u n c e r t a i n t y m o r e e f f e c t iv e l y i s a f le x i b l e e n v i r o n m e n t a l a s s u r a n c e b o n d i n g s y s te m , d e s i g n e d t o i n c o r p o r a t e

e n v i r o n m e n t a l c r i t e r i a a n d u n c e r t a i n t y i n t o m a r k e t i n c e n t i v e s . T h i s s t u d y u s e s a n e x p e r i m e n t a l a p p r o a c h , e m p l o y i n g

a n i n t e r a c t iv e c o m p u t e r g a m e / s i m u l a t i o n m o d e l w i th h u m a n p l a y e r s t o e x a m i n e t h e e f f e c ti v e n e s s o f th e a s s u r a n c e

b o n d i n g s y s t e m u n d e r v a r y i n g d e g r e e s o f u n c e r t a i n ty . A n e n v i r o n m e n t a l c o s t e f f ic i e n c y i n d e x ( E C E I ) , o r p r o f i t p e r

u n i t w a s t e , is u s e d t o m e a s u r e p l a y e r p e r f o r m a n c e . P r e l i m i n a r y re s u l t s i n d i c a t e th a t p l a y e r s a re m o r e s u c c e s s f u l

u n d e r t h e a s s u r a n c e b o n d i n g s y s te m , in t e rm s o f E C E I , t h a n u n d e r t h e s i m u l a t e d c u r r e n t s y s te m .

Keywords :

A s s u r a n c e b o n d i n g s y s t e m ; S i m u l a t i o n m o d e l

1 . I n t r o d u c t i o n u n d e r p r e s e r v a t i o n p r o t e c t i o n b y t h e g o v e r n m e n t

w e r e o p e n a c c e s s , f r e e a n d a v a i l a b l e t o a ll . T h e

1 . 1 . B a c k g r o u n d r e s u lt w a s o v e r e x p l o i t a t i o n o f t h e e n v i r o n m e n t

a n d t h e t r a g e d y o f t h e c o m m o n s ( H a r d i n , 1 96 8) .

P r i o r t o t h e 1 9 60 s e n v i r o n m e n t a l p o l i c y i n t h e W i t h t h e e n v i r o n m e n t ' s d e c l i n i n g c o n d i t i o n

U n i t e d S t a t e s w a s b a s e d u p o n R i p a r i a n R i g h t s t h r o u g h t h e 1 96 0 s a n d t h e i n c r e a s e o f p u b l i c

a n d E n g l i s h c o m m o n l aw . T h o s e re s o u r c e s n o t a w a r e n e s s t h r o u g h p u b l i c a t i o n s s u c h a s R a c h e l

C a r s o n ' s S i l e n t S p r i n g ( 19 6 2 ) a n d K e n n e t h B o u l d -

i n g ' s T h e E c o n o m i c s o f t he C o m i n g S p a c e s h ip

E a r t h

( 1 9 6 6 ) , t h e e n v i r o n m e n t ' s s t a t u s c h a n g e d t o

C o r r e s p o n d i n g a u t h o r , t h a t o f a sc a r c e a n d v a l u a b l e r e s o u r c e . L e g i s l a -

0921-8009/94/ 07.00 1994 Elsevier Science B .V. All r ights reserved

SSDI 0 9 2 1 - 8 0 0 9 ( 9 4 ) 0 0 0 0 6 - H


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3/14

L . C o rn w el l, R . C o s ta n z a / E c o l o g i c a l E c o n o m i c s 1 1 1 9 9 4 ) 2 1 3 - 2 2 6

2 5

s u g g e st . T h e i n s t r u m e n t t h a t w e a r e s u g g e s t in g t h e b u r d e n o f p r o o f ( a n d t h e c o s t o f t h a t b u r d e n )

s h o u l d b e c o n s i d e r e d a l o n g w i t h o t h e r r e g u l a t o r y is s h i f t e d f r o m t h e p u b l i c t o t h e r e s o u r c e u s e r,

t o o ls t h a t o f f e r f e x i b i l i ty , a n d a s t r o n g e c o n o m i c i n c e n t iv e is p r o v i d e d t o

r e s e a r c h t h e t r u e c o s t s o f e n v i r o n m e n t a l l y d a m a g -

1.3 . Assurance bonding i n g a c t i v i t i e s a n d t o d e v e l o p i n n o v a t i v e , c o s t - e f -

f e c t i v e p o l l u t i o n c o n t r o l t e c h n o l o g i e s . A s s u r a n c e

U n c e r t a i n t y is n o t t h o r o u g h l y a d d r e s s e d i n e n - b o n d i n g is a n e x t e n s i o n o f t h e p o l l u t e r p a y s

v i r o n m e n t a l p o l i cy d e s p i t e i ts i m p o r t a n c e a n d p r i n c i p le t o t h e p o l l u t e r p a y s f o r u n c e r t a i n t y a s

p e r v a s i v e n e s s i n e n v i r o n m e n t a l p r o b l e m s . A n i n- w e l l o r t h e p r e c a u t i o n a r y p o l l u t e r p a y s p r i n c i-

n o v a t i v e p o l i c y c u r r e n t l y b e i n g s t u d i e d is a f l ex i - p l e ( 4 P ) ( C o s t a n z a a n d C o r n w e l l , 1 9 9 2) .

b l e e n v i r o n m e n t a l a s s u r a n c e b o n d i n g s y s t e m d e - N e i t h e r t h e p r i n c i p l e n o r t h e i n s t r u m e n t p r o -

s i g n e d t o i n c o r p o r a t e e n v i r o n m e n t a l c r i t e r ia a n d p o s e d a r e n e w . T h e e n v i r o n m e n t a l b o n d h a s i ts

u n c e r t a i n t y i n t o t h e m a r k e t s y s te m , a n d t o i n d u c e r o o t s i n t h e m a t e r i a l u s e f e e s f i rs t p r o p o s e d b y

i n n o v a t i v e e n v i r o n m e n t a l t e c h n o l o g y . T h i s v a r i a - M i l l ( 1 9 7 2 ) a n d S o l o w ( 1 9 7 1) , t h e s i m p l e s t w o r k -

t i o n o f t h e d e p o s i t r e f u n d s y s te m is d e s i g n e d t o i ng e x a m p l e o f w h i c h is t h e r e f u n d a b l e d e p o s i t o n

i n c o r p o r a t e b o t h k n o w n a n d u n c e r t a i n e n v i r o n - g la s s b o t t le s . T h e a i m o f t h e d e p o s i t is t o e n c o u r -

m e n t a l c o s t s i n t o t h e i n c e n t iv e s y s t e m a n d t o a g e t h e u s e r s t o d i s p o s e o f t h e c o m m o d i t y i n t h e

i n d u c e p o s i ti v e e n v i r o n m e n t a l t e c h n o l o g i c a l i n n o - m o s t d e s i r a b l e w a y ( b y r e c y c l in g ) a n d t o a v o i d i ts

v a t i o n ( C o s t a n z a a n d C o r n w e l l , 19 9 2 ). T h e a s su r - d i s p o s a l i n t h e l e a s t d e s i r a b l e w a y ( a s l i tt e r ) . T h e

a n c e b o n d i n g s y s te m h a s b e e n d i s c u ss e d e l se - d e p o s i t m a y n o t b e s u f f i c ie n t t o c o v e r t h e c o s t o f

w h e r e i n t h e l i t e r a t u r e ( C o s t a n z a , 1 9 8 7 a ; P e r - t h e w o r s t p o s s i b l e m e t h o d o f d i s p o s a l , b u t i t is

r i n g s, 1 98 9; C o s t a n z a a n d P e r r i n g s , 1 99 0; F a r b e r , g e n e r a l l y s e t a t a l e v e l h i g h e n o u g h t o m a k e

1 99 1; C o s t a n z a a n d C o r n w e l l , 1 9 9 2 ) a n d i s n o t r e t u r n i n g t h e b o t t l e p r i v a t e l y p r o f i t a b l e . T h e i m -

t h e to p i c o f t h is p a p e r ; h o w e v e r , a b r i e f o v e r v ie w p o r t a n t f e a t u r e o f t h e f e e is t h a t b y i n si s ti n g t h a t

o f t h e p r i n c i p le s i n v o lv e d is w a r r a n t e d , c o n s u m e r s p a y in adt ance f o r t h e c o s t s t h e y

T h e e n v i r o n m e n t a l a s s u r a n c e b o n d i n g s y s t e m

migh t

i n f li c t o n s o c i e t y if t h e y a d o p t e d t h e m o s t

r e q u i r e s th o s e s e e k i n g t o u s e so c i e ty ' s r e s o u r c e s h a r m f u l m e t h o d o f d i s p os a l , i t r e v e r s e s t h e u s u a l

t o p o s t a b o n d e q u a l t o t h e w o r s t - c a s e d a m a g e s p r e s u m p t i o n o f i n n o c e n c e o v e r g u i l t a s a p -

t h e y c o u l d i n fl ic t o n t h e e n v i r o n m e n t , i n a d v a n c e p l i ed t o e n v i r o n m e n t a l d a m a g e s . T h e i n n o c e n t -

o f a n y a c ti v it y . W o r s t - c a s e d a m a g e s c e n a r i o s u n t i l -p r o v e n - g u i l t y a r g u m e n t is n o t a p p l i c a b l e in

w o u l d b e e s ta b l i s h e d b y t h e r e g u l a t o r y a u t h o r i t y t h e c as e o f f ir m s u s i n g s o c i e ta l r e s o u r c e s a s r e -

w i t h t h e b e st in f o r m a t i o n a v a il a b le a n d w i t h t h e c e i v e rs o f p r i v a t e ly g e n e r a t e d w a s t e s in c e t h e r e is

a d v i c e o f i n d e p e n d e n t s c ie n t is t s. I f r e s o u r c e u se r s n o q u e s t i o n t h a t t h e a ct is b e i n g c o m m i t t e d . I t is

c o u l d d e m o n s t r a t e t h a t d a m a g e s to t h e e n v i r o n - t h e a m o u n t o f d a m a g e t h a t is u n c e r t a i n , a n d i t is

m e n t w e r e le s s t h a n t h e a m o u n t o f t h e b o n d o u r c o n t e n t i o n t h a t s o c i e ty s h o u l d n o t b e a r t h is

( o v e r a p r e d e t e r m i n e d l e n g t h o f t i m e , s p e c i f i e d i n r is k .

t h e b o n d ) , t h is d i f f e r e n c e a n d a p o r t i o n o f e a r n e d I n t h e U . S ., e x a m p l e s o f b o n d u s e f o r e n v i r o n -

i n t e r e s t w o u l d b e r e f u n d e d . T h u s , t h e e n v i ro n - m e n t a l p o l ic y a r e f e w . W h e r e t h e y d o a p p e a r in

m e n t a l a s s u r a n c e b o n d i n g s y s te m i n s u r e s t h a t t h e l e g is l at iv e la n g u a g e , t h e y a r e g e n e r a l l y o n e o f

f u n d s a v a i la b l e f o r p r o t e c t i n g t h e e n v i r o n m e n t s e v e r a l f i n a n c i a l m e c h a n i s m s a v a il a b le t o f i rm s

a r e e q u a l t o t h e p o t e n t i a l h a r m f a c in g i ts r e - t h a t a r e r e q u i r e d t o d e m o n s t r a t e fi n a n c ia l r e -

s o u r c e s, s p o n si b il it y . T h e r e a r e t h r e e e x a m p l e s w h e r e

I f d a m a g e s d i d o c c u r , t h e b o n d w o u l d b e u s e d b o n d s a r e r e q u i r e d : O w n e r s a n d o p e r a t o r s o f

t o r e h a b i l i t a t e o r r e p a i r t h e e n v i r o n m e n t , a n d u n d e r g r o u n d i n j e c t io n w e l ls a r e r e q u i r e d t o p o s t

p o s si b ly t o c o m p e n s a t e i n j u r e d p a r t ie s . B y r e q u i r - b o n d s t o e n s u r e p r o p e r p lu g g i n g a n d a b a n d o n -

i n g t h e u s e r s o f e n v i r o n m e n t a l r e s o u r c e s t o p o s t a m e n t o f w e l ls . B o n d s a r e c u r r e n t l y r e q u i r e d b y

b o n d a d e q u a t e t o c o v e r p o t e n t i a l f u t u r e e n v i r o n - c o m p a n i e s l e a si n g p u b l i c la n d f o r o il a n d g a s

m e n t a l d a m a g e s ( w i th t h e p o s s ib i li ty f o r r e f u n d s ) , e x p l o r a t i o n / e x t r a c t i o n t o e n s u r e p r o p e r c a p p i n g


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216

L. C ornwell, R. Costanza /Eco logic al Economics 11 1994) 213-226

of wells and restora tion of lands or surface waters lieve that the experimental approach is a neces-

after the cessation of the lease operations. Fi- sary component of the analysis because it can

nally, bonds must be posted by logging companies better address the incentives of the regulatory

to use existing roads on public lands for the system without depen dence on (potentially

transport of timber, flawed) theoretical models of individual response.

Costanza and Perrings (1990) categorize the This experimental approach consisted of four

current command and control system using the stages: model development, game programming,

social trap paradigm (Platt, 1973; Cross and data generat ion by huma n volunteers, and finally,

Guyer , 1980; Costanza, 1987a). Several experi- data analysis.

mental games have been designed to study behav-

ior in social traps. The already-mentioned 2 .1 . T h e m o d e l

tragedy of the commons is a trap used to study

resource exploitation (Edney and Harper , 1978). The model was designed using STEL LA

The well-known prisoner's dilemma game is an (Structured Thinking Experimental Learning

externality trap that has been used to study the Laboratory with Animation), a software package

evolution of cooperation (Axelrod, 1984), and developed by High Performance Inc. for the Ap-

more recently, the dollar auction game, an invest- pie Macintosh (cf. Costanza, 1987b). Smith and

ment trap, was used to study the effect of taxa- Williams (1992) recently used simulated markets

tion on the conflict escalation process (Costanza to analyze the principles that govern trading deci-

and Shrum, 1988). For this study, an experimen- sions; however, as far as we know, our study is

tal firm management game was developed that the first

d y n a m i c ,

interactive simulation model

measures player behavior and performance while examining pollution abatement systems. Model

making management decisions in a theoretical development occurred in stages, with model be-

firm, under both the command and control regu- havior observed at each stage. Values and units

latory system and the assurance bonding system, in the model are arbitrary. The model is not

intended to simulate any particular industry, but

instead examines relative behavior and the im-

2. Methods pact of the human player's decisions.

As with all models, this one is a trade-off

The purpose of this experiment was to deter- between realism, precision, and generality. Upon

mine the effect of two charge systems on individ- initial inspect ion of the model diagram (Fig. 1), it

ual behavior, under varying degrees of uncer- may appear quite complex. However, upon fur-

tainty. This was accomplished by developing a ther examination of the model symbol definitions

game designed for one player who manages a (Appendix 1), it can be seen that the model is

computer-simulated company by controlling pro- really quite basic. Two of the seven state vari-

duction level and amount of resources devoted to ables, Cum Env Damages and Acc Env Fnd, are

waste reduction. As previously mentioned, sev- merely accounting components that have no out-

eral models of the profit-maximizing firm have flows and no external variables. The model was

been constructed to examine the effectiveness of made as simple as possible while including those

pollution abatement using market mechanisms, components the authors felt were minimally nec-

and several have considered the importance of essary to simulate the workings of a firm under

uncertainty (cf. Averch and Johnson, 1962; two environmental policy regimes. The final ver-

Weitzman, 1974; Adar and Griffin, 1976; Fishel- sion includes 7 state variables (boxes in Fig. 1), 8

son, 1976; Robert s and Spence, 1976; Baron and input flows, 7 output flows (double-lined arrows

Taggart, 1977; Magat, 1978; Mendelsohn, 1984; with valves in Fig. 1), and 25 auxiliary variables

Harford, 1987; Plourde and Yeung, 1989; Farber, (circles in Fig. 1). Flows of money, products, and

1991). None, however, have included the experi- wastes are shown by double-lined arrows while

mental aspect addressed in this paper. We be- flows of informat ion are indicated by single-lined


5/14

L. Cornwell, R. Costanza / Ecological Econom ics 11 1994) 213 -226 2 1 7

a A s s e t s S u b m o d e l

~ a l e s M . t P c e 0 ~ o s t s / ~ : ~ s i t s / D i s ~ a r 0 e ' . , t _ ~

T T ( I%~'~ Charge System

S h ip m en ts ~ _ ~ I T }, ~ ~ I , ~ L / C h a r g e S :

~ M o ne t a r y \ I npu t s ~ ~ T o t a l Cos t s ~ . U nc e r t

R efun ds .......... ' ~ a l P ro fits EnvD~isastePOS tPaid Dam ages

~ - r f Usr P'rod - -

W a ste F r a c t ~ I nv e nt or y

W aste ReducTech Unit Wa ste Red Cost Forcast Shipmts Product Demand

c

Wastes ubmodel ~

[

Un it Wa ste ~ W aste Fraction

. . . . . . ~ C u re I D i s c h a ~ 1 ~

Waste Reduc k j / ~ / ~ D ias ter Threshold

Tech Production Env Disaster

~ }~ ~ Rand ~ - ~...J

Postp-ay ~ T of Change o Pre f . ~ Discharged

Charge

[

System , T

[

~ ' ~ ' ~ ~ J ~ L r n t F r ac ~ t F irm I ~ X ~ s t e m

0~o~ ~ , ~ . A _ J C ~ . ~ . .~ , . . . . .

l v~ ( ~ ~ - ~ ACCEnv Fnd

(Wors t C a s e E s t i m a t e ~ Assur IBnd Env Res Fnd ~ . ~

\ ~ nterest II ~ /

, ,. . , f -. , . , . I ~ - ,.- I ~ 3 - 1

Max Discharges

Interest

Charge

L P

~ . . . . .. ; r .: . . . . .. .

U Re,u~s

Unc--eert ~ j / To tal W ithdraw

ischarged

Env Disaster

I I ~ ~ ~ , . - ~ 0

S t a te V a r i a b l e G o o d s o r S e r v i c e F l o w F u n c t i o n a l A u x i l i a r y o r

D e p e n d e n c e E x o g e n o u s

V a r i a b l e

L E G E N D

F i g. 1 . D i a g r a m o f t h e S T E L L A M o d e l . i n c l u d i n g fo u r s u b m o d e l s .


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2 8

L. CornweU, R . Cos tanza / Eco log ica l Econ omics 1 l 1994) 213 -22 6

arrows. Symbol definit ions are given in Appendix environmental disaster events as well as addi-

1. The model is composed of four connec ted tive effects over time, resulting in perceivable

submodels depicting firm assets, company inven- changes in ecosystem health. The environmental

tory, level of wastes, and the assurance bond. threshold variable determines the level at which

The Assets stock is incremented by flow from an environmental disaster will occur. During the

moneta ry inputs and decre ment ed by outflow to postpay system of regulation, environmental dam-

total costs (Fig. la). Monetary inputs include age payments are deducted from firm assets. Dur-

sales based on market price and numbe r of ship- ing the prepay system, they are deducted from

ments as well as refunds from the bond. Total the assurance bond (Fig. la, Assets Submodel).

costs are the sum of total input costs, assurance The assurance bond is established with a one-

bond deposits made during the prepay charge time deposit from firm assets (Fig. ld). This oc-

system, and environmental damages paid during curs when the regulation system switches to the

the postpay charge system, including a randomly prepayment system at some randomly selected

generat ed uncertainty component. Unce rtainty time between time steps 20 and 40 during the

enters into the model through payments for envi- simulation. The firm managem ent simulation runs

ronmental damage. Uncerta inty is a random for a total of 60 time steps (simulated years).

number between 0 and 1 and affects the amount Once the bond is established, it accumulates in-

a player must pay for a given amount of envi- terest, which increases the bond's value over time.

ronmental wastes. Paying variable amounts for Refunds to the firm are granted on a yearly basis

the same level of environmental wastes repre- when costs of environmental damages are less

sents the aforementioned uncertain ty that arises than the assessed estimate. A portion of the

with respect to detection, amount of damages, interest also accumulates in an environmental

liability, clean-up costs, enforcement , potential research fund.

legal action, and amount of time the polluter is

responsible for their emissions. 2 2 T h e g a m e

The stock of inventory is based on inputs from

product ion and outputs to shipments (Fig. lb). The model was made into an interactive game

Shipments are based on a randomly generated using STELL AStack (High Performance Inc.), a

product demand that forecasts five years into the two-way interface between STE LLA and Hyper-

future. The cost of inputs for production is the card software. Hyperca rd makes the simulation

sum of unit costs for inputs and waste reduction model playa ble as a game with only minimal

technology multiplied by the amount of produc- training required for the player. It enables the

tion. As the level of production increases, so do novice to interact indirectly with the STEL LA

the costs associated with inputs to attain that model and, thus, not only make decisions while

level, the simulation is unfolding, but also examine the

Stocks of waste are based on by-products of consequence of those decisions. Production level

production and discharge (Fig. lc). Waste pro- and the amount of resources devoted to waste

duction is simply a function of the level of firm reduction are the only variables players can ma-

product ion and the amount of resources devoted nipulate. The game begins with these variables

to waste reduction technology. Waste reduction set at a default level (see Appendix 1). Because

technology can improve efficiency by decreasing the play screen is linked directly to the model

the waste fraction (i.e., by recycling or by using through StellaStack, when players make changes

new technology). As wastes are released into the in production level or waste reduction technol-

environment, they accumulate as a stock of dis- ogy, these translate into para meter changes in the

charge. This discharge, in turn, determine s the model. Changes can be made at any time during

stock of cumulative environmental damage. Envi- the running of the game. If the player does not

ronmental disasters are considered to be any choose to make any manipulations, these vari-

adverse effects on the environment. They include ables will be determined by the model.


7/14

L . C o rn w el l, R . C o s ta n z a / E c o l o g i c a l E c o n o m i c s 1 1 1 9 9 4 ) 2 1 3 - 2 2 6 219

T h e g a m e b e g i n s b y p r o m p t i n g t h e p l a y e r t o p a n t s w e r e g i ve n s o m e p r e l i m i n a r y i n s t ru c t i o n s

l o g i n t h e i r n a m e , o c c u p a t i o n , a d d r e s s , g e n d e r , a b o u t u s i n g t h e c o m p u t e r a n d t o l d t h a t t h e o b j e c t

a n d a g e a s w e l l a s s o m e s i m p l e in s t r u c t io n s o n o f t h e g a m e w a s t o m a x i m i z e p r o f it s . B e c a u s e o f

h o w t o p l a y t h e g a m e a n d w h a t t h e o b j e c t iv e s a r e . t h e r e a l i t ie s o f i n c r e a s e d e n v i r o n m e n t a l a w a r e -

E a c h t i m e a p l a y e r b e g i n s a n e w g a m e , a r a n d o m h e s s, m o r a l o b l i g a t io n s to s o c ie t y a n d t h e i n f lu -

l e v el o f u n c e r t a i n t y is e s t a b l is h e d . M o d e l - g e n e r - e n c e n e g a t i v e e n v i r o n m e n t a l p r e s s c o u l d h a v e o n

a t e d d a t a o n a s s e t s, a n n u a l p r o f i t s , t o t a l c o st s , s a l e s, p l a y e r s w e r e a l s o t o l d t h a t t h e y m i g h t w a n t

c u m u l a t i v e e n v i r o n m e n t a l d a m a g e a n d t h e a s s u r- t o t h i n k a b o u t m i n i m i z i n g e n v i r o n m e n t a l d a m a g e .

a n c e b o n d a r e d i s p l a y e d f o r p l a y e r s o n a y e a r l y T h e y w e r e a l so i n f o r m e d t h a t t h e g a m e w a s d e -

b a s is F i g. 2 ). B e s i d e s t h e i n f o r m a t i o n o n t h e p l a y s i g n e d t o s t u d y t w o t y p e s o f p o l l u t i o n a b a t e m e n t

s c r e e n , p a r t i c i p a n t s c a n v i e w t h e i r p r o g r e s s o v e r s t r a te g i e s . A ll re s p o n s e s e n t e r e d b y th e s t u d y

t i m e b y e x a m i n i n g t h e e n v i r o n m e n t a l g r a p h s , e c o - s u b j e ct s w e r e r e c o r d e d b y t h e c o m p u t e r i n a n

n o m i c g r a p h s , b o n d g r a p h s , a n d p r o f i t g r a p h s o u t p u t f il e.

F i g. 3 ). W h e n t h e c h a r g e s y s te m c h a n g e s f r o m A s p r e v i o u s ly m e n t i o n e d , t h e g a m e is d e s i g n e d

p o s t p a y t o p r e p a y , t h e p l a y e r is n o t i f i e d t h a t t h e t o t e s t p l a y e r b e h a v i o r u n d e r a p r e p a y m e n t a s -

a s s u r a n c e b o n d i n g s y s te m i s i n e f f e c t a n d t h a t i t s u r a n c e b o n d i n g ) v e r s u s a p o s t p a y m e n t c o rn -

g e n e r a t e s i n t e r e s t , a p o r t i o n o f w h i c h w ill b e m a n d a n d c o n t r o l ) s y s te m , w i t h v a r y i n g d e g r e e s

r e f u n d e d t o t h e f ir m . o f u n c e r ta i n ty . O u r m e a s u r e o f p l a y e r p e r f o r -

m a n c e , a n e n v i r o n m e n t a l c o s t e f f ic i e n c y i n d e x

2 3 Players

E C E I ) , w a s c a l c u l a t e d b y d i v i d i n g t o t a l c u m u l a -

t i v e p r o f i t b y t o t a l c u m u l a t i v e w a s t e . W e d i d n o t

V o l u n t e e r s f o r t h is s t u d y c o n s i s te d o f E n v i r o n - u s e t h e s ta n d a r d i n d e x o f e f f i c ie n c y u s e d in e c o -

m e n t a l P r o t e c ti o n A g e n c y p e r s o n n e l , g r a d u a t e n o m i c e x p e r i m e n t s t h e e x p e r i m e n t a l ly o b s e r v e d

s t u d e n t s i n a p u b l i c p o l i cy c o u r s e a t t h e U n i v e r - n e t s o c ia l b e n e f i t s d i v i d e d b y t h e m a x i m u m p o s si -

s it y o f M a r y l a n d , s t u d e n t s a n d f a c u l ty a t t h e b l e e x p e c t e d n e t s o c ia l b e n e f i t s ) b e c a u s e w e a r e

C h e s a p e a k e B i o l o g ic a l L a b o r a t o r y a n d , f o r a n a r g u i n g t h a t t h e s o c ia l c o s t o f p o l l u t i o n is o f t e n

i n t e r n a t i o n a l p e r s p e c t i v e , f a c u l t y a n d s t u d e n t s a t u n c e r t a i n o r u n k n o w n . B e c a u s e o f t h is , w e d id

t h e U n i v e r s i t y o f S t o c k h o l m i n S w e d e n . P a r t i c i- n o t w a n t t o a s si g n a n a r b i t r a r y v a l u e t o p o l l u t io n .

Y e a r 0 A s s e t s 0 I

Was te Reduction raction Scale

A n n u a l P r o f i t s 0 ] O f t h e f r ac t io n f r e s o u r c e s h a t _ re v a il a bl e o r

Sal es 0 w~ste reduchon, what f~uc~on ould you like

Re fu nd s on Bo nd 0 to devo~ ~o this echnology?

CProfits

= Sales eefund, rot,, osts I ~ I

O ~

T o t a l C o s t s 0 O 1 0 0

E n v i r o n C h a r g e s O

I n p u t C o s t s 0

Production

Bo nd Dep osi ts 0 P]~yer efn~d P~od~ction ev~l if then he budt

T o t a l C o s t s = E n v i ro n C h a r ge s + I np ut C o s t s i n ~ e r w i l l d e t e F m l ~ p r o d u c t i o n l e v e l b a s e d

+

B o n d

D e p o s i t s )

o n a f o r e c a s t f s a le s )

Cumm Envir

amage

I [ ~

o ~

Wastes O I L ~ H~ ~

E n v i r o n D i s a s t e r s O

C u r n m E n v i r a m a g e i s a f un c t i on

f astes Cont rol ut to ns

,vet ime Environ i s as te rs O cc ur w h en I ~ . . . ~ . . ~ ~

S ta rt N e w G a m e ~ G o t o H E L P i

g o u r C u m i n D a m a g e r e a c h e s r i ti c al e v el s ) .

A s s u r a n c e B o n d 0 I P a ~ e O ~ m e ( ~ S ho w En v lr o nO ~ ,p h. s ( ~

Interest on Bond O I R ~ O ~ ~ ~ho.Eco~O~ ~

~toPOame (~ ~ h o w

ond

Omphs (~

efunds

o

t h e b o n d t o t h e f i r m , r e s h o w n

n d e r

A n n u a l P r o f i t s , a b o v e . ) I v [e d ~

M e n u ~ S h o w P ro fi ts r a p h ~

Fig. 2. The play screen where management decisions are made by players.


8/14

2 2 0 L. Cornwel l, R . Cos tanza /Ec o lo g ic a l Econ omic s 11 1994) 213 -22 6

I ns tead , we dec ided to determine which s ys tem 3 .

esults

of fered the greates t env ironmenta l e f f i c iency . As

the ECE I va lue increas es, ma nagem ent dec i s ions Data were part i tioned in to two s amples , va lues

are cons idered more e f f i c ien t s ince annual prof it s generated by the model dur ing the pos tpay sys-

were be ing ma de wi th the l eas t env ironmenta l t ern and thos e generated dur ing the as s urance

impact. W e hypo thes ized that p layers wo uld have bond ing system. Thirty-three gam es wer e run with

the incent ive to ma nage their f irm in a mo re no players. W ithout player man ipulat ion, a l l vari-

env ironmenta l ly e f f i c ien t way under the prepay ab le va lues are determined by the mod el . The

s ys tem and that th is e f f i c iency ga in wou ld be output f i l e s f rom thes e games cons t i tu ted the

mos t pronounced whe n uncerta in ty was h igh . As contro l data . Th e e f f i c iency index o f the two

a res u lt , EC EI va lues under the prepay s ys tem charge s ys tems was comp ared us ing a pa ired t-

w i l l be greater than under the pos tpay s ys tem, t est . The re la t ionsh ip betw een ECE I and uncer-

Y e a r ~ ] e ~ R e f u n d ~ T o t a l C o ~ t$ t O 0 S a l e s I . M s u r = n c e A s s u r a n c e

/ Y e a r R e f u n d s I n t e re ~ t B o n d 2 0 0 0 ~

1 . 0 0 7 0 . 6 1 0 . 0 0 2 2 . 8 Z 7 5 1 1 1 .0 0 0 . 0 0 0 . 0 0 0 . 0 0 I I 1 5 0 0 " J

3 . 0 0 b '7 .5 9 0 . 0 0 1 8 .Z 4 r ~ S O " ~ ~ A - - 3 . 0 0 0 0 0 O .O O 0 . 0 0 I 0 0 0

~. w 0 . 0 0 r e .e r a r ~ , 1 1 4.0 0 0 o o 0 o o 0 . 0 0 r ~ , ~ j j

" R '~ u r n t ' ~ e e y C o ~ _ . - S h ~ r e P " ~ 2 5 ~_ - t( ., ' R e t u r no P l a y C a r d ~ ( S l m m E o n 6 r a p l * s S O 0 ~ J L . .. ,. .. .. ., _

S h e m E n u i r o n 6 r e p b s | / $ h o w B o n d 6 r n p l l s l 0 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " " , " h e w E n o l r o n B r a P h U ( ? h w P r o f l t s G r e p h ' j 0 :~ J . . . . . . . . . . . .

* " - -- 15 30 45 60 15 30 45 60

5 0 ] n T o t a l C o s t s 2 5 0" ~. R e f u n d s 2 0 0 1 I n t e r e s t 2 5 0 1 R e f u n d s

, . . ' V L _ _ i

6 2 . 5 ' 5 0 6 2 . 5 ~

/ ' %

O l . . . . . . . .. . . . . . . . .. . . . . . . . .. . . . . . o . . . . . . . .. . I .~ . . . . . . . .. . . . . . . . .. o . . . . . . . . .. . . . . . . . .. o . . . . . . . . .. I ~ t . .. .. .. .. ..

0 s 3 0 . 5 6 0 ~ ~ . ~ 6 0 0 s 3 0 . 5 6 0 i s 3 0 . 5 6 0

a. Profit Graphs b. Bon d Graphs

Y e a r ~ l ~ e ~ e i w l r '" ~ ln ~ srt n= ,m e n ta lw a = ,e , 4 0 0 1 C u m u l e t i v e E , v l r o n m e n t a l Y e a r A s s e t s n n u a l P r o f i ts P r o d u c t i o n 1 0 0 0 0 ~ A s s e t s

o o o 0 0 , 0 0 0 ~ 3 o o t D a m a g e s O .C O 5 0 0 0.0 0 5 6 .0 0 1 0 . 0 0 ~ . -~ 7 5 0 0 - ~

I : : : ; o : N o o : : : N s o o o

0 ~ . ~ . . r . . r . . ~ . . . ~ . . . , . . . .

I ( , , . r n t o P l . , ~ . r X s , o - , o . , r n , , . ) . . . o .. . . 5 . .. . ~ . .. . 5 . .. . o how[nuironGra--~( homProntsGraphs)]0~,.~.,~,~-~.-3,0.~-..4m....,0

S h o w E c o n 6 r a p h s ) I S h o w P r o f i t s G r a p h . ) P r o d u c ti on 1 0 0 ] A n n u a l P r o f i ts

Environmental I 0 ~ 0 ~

15 Wastes 1 0 OIsasters 0

; ' . 5 ~ 5 0 5

75 25 2.5 -5 0 .......,U ............

o = ~o ~5 6o o s ~0 45 6 [ 0 ~ ~0 4'~' 20 0 15 ~0 45 6

c. Environmental Graphs d. Eco n Graphs

F i g . 3 . E x a m p l e s o f p r o g r e s s o v e r t i m e a s v i e w e d b y p l a y e r s o f t h e g a m e . O n l y o n e s e t o f g r a p h s c a n b e v i e w e d a t a t i m e . a . P r o f i t

G r a p h s i n c l u d e o u t p u t o v e r t i m e o f fi r m sa l es r e f u n d s f r o m t h e b o n d a n d t o t a l c o s ts b . B o n d G r a p h s i n c l u d e o u t p u t o v e r t i m e o f

t o t a l b o n d a m o u n t i n t e r e s t e a r n e d o n t h e b o n d a n d r e f u n d s t o t h e f i rm o f th e b o n d . c . E n v i r o n m e n t a l G r a p h s i n c l u d e o u t p u t o v e r

t i m e

o f c u m u l a t i v e e n v i r o n m e n t a l

d a m a g e s w a s t e s p r o d u c e d b y t h e f i rm a n d e n v i r o n m e n t a l d i s a s t er s c a u s e d

a s a r e s u l t o f f i r m

w a s t e s d . E c o n G r a p h s i n c l u d e o u t p u t o v e r t i m e o f fi r m a ss e t s p r o d u c t i o n l e v e l a n d a n n u a l p r o fi t s.


9/14

L. Cornwell, R. Costanza / Ecological Econom ics 11 1994) 213 -226 221

tainty was determ ined for both samples us ing fess ionals , s tudents , and engin eers . Bec ause the

l inear regress ion. Th e result ing s lopes we re corn- last two categ ories have small sam ple s izes , they

pared us ing the F-tes t Sokal and Roh lf , 1981) to we re not included in al l analyses but we re in-

deter min e i f unde r high uncertainty condit ions cluded in the 8-variable mo del) . For al l poss ible

players perfo rm ed s ignif icant ly better under the occup at ion pairs , variance hom ogen eity was tes ted

assurance bond ing system than under the corn- us ing the Fmax tes t Sokal and Rohlf , 1981) . Ana l-

mand and contro l s ystem, ys es were then perform ed us ing the unpa ired

Player characteris t ics we re analyzed with EC EI t - tes t for unequ al sam ple s izes and, wh ere appro-

to better understand the role that these charac- priate , unequ al variances Sne deco r and Cochran ,

teris t ics have on player perfor ma nce. Tw o analy- 1980) . EC EI scores of ma les and fem ales we re

ses wer e used to determ ine i f p layer characteris- a lso com pared us ing the t - tes t for unequa l sam-

t ics af fect EC EI. Mu lt iple regress ion m odels we re ple s ize . Finally , reg ress ion mo dels w ere con-

cons tructed w i th e igh t var iab les age , game num- s t ructed to exam ine the re la t ions h ip betw een

ber, t ime of chan ge to the prepay system, charge ECE I and various com binat ion s of explanatory

system, gende r, res iden ce, occu pat ion and uncer- variables for both the prepay system and the

tainty) , f ive variables a ge, gam e num ber, t ime of postpay system Tab le 1).

chan ge to the prepay system, charge system, and Thirty-s ix peo ple played the gam e a total of

uncertainty) and three variables age, gam e num- 101 t imes for an average of 2 .89 gam es per player.

ber, and charge system). Un paire d t - tes ts we re Th e average age of the study subjects was 35

us ed to examine ECE I betw een p laces o f res i- range 22-60) . The mo del inherently performs

den ce U.S. or Swe den) and occup at ions . Player better i . e . , with no player input) unde r the pre-

occup at ion was divided into the fol low ing cate- pay system me an EC EI = 9 .706) than the post-

gories: eco no m ists, natural scientists , policy pro- pay system m ean EC EI = 4.552), due to initial

T a b l e 1

Mu lt ip le r e gr e s s ion of the e ight - f ive - and thr e e -var iable mod e ls . The inde p e nd e nt var iable in a ll c ase s was E C E I

D e p e n d e n t v a r i a b l e s C o e f f i c ie n t S t . e r r or t - v a lu e P r o b a b i li t y

8 - v a r i a b l e m o d e l a

G a m e n u m b e r 0.927 0.232 3.996 0.0001

C h a r g e s y s t e m 8.113 1.375 5.903 0.0001

A g e - 0.227 0.090 2.532 0.0124

C h a n g e t o p r e p a y s y s t e m -5. 31 2 2.372 2.239 0.0266

U n c e r t a i n t y 107.278 47.181 2.274 0.0244

O c c u p a t i o n 0.1341 0.7227 0.186 0.8531

R e s i d e n c e 0.353 0.46l 0.765 I).4453

G e n d e r - 0.06 7 1.969 0.(134 0.97 3

5 - v a r i a b l e m o d e l b

G a m e n u m b e r 1.026 0.189 5.42 0.0001

C h a r g e s y s t e m 7.178 1.194 6.012 0.0001

A g e - 0.226 0.064 3.516 0.0005

C h a n g e t o p r e p a y s y s t e m - 3.902 2.068 1.887 0.060 7

U n c e r t a i n t y 78.314 41.048 1.908 0.0579

3 - v a r i a b l e m o d e l c

G a m e n u m b e r 0.976 0.188 5.202 0.0001

C h a r g e s y s t e m

7.164 1.200 10.973 0.0001

A g e - 0.226 0.063 3.612 0.0004 ~

I n t e r c e p t = 109.438 , R 2 = 0.359, F = 10.304, P = 0. 0001.

b Int erc ep t = 82.788, R 2 = 0.322, F = 18.159, P = 0.0001.

c Int er cep t = 7.055, R e = 0.309, F = 28.741. P = 0.0001.


10/14

222 L. Cornwell, R. Costanza / Ecological Econom ics 11 1994) 213-22 6

c o n d i t i o n s a n d r e t u r n s f r o m i n t e r e s t. B e c a u s e o f R e s u l t s o f a n u n p a i r e d t - te s t f o r u n e q u a l s a m -

t h is b i as , t h e m e a n E C E I f o r c o n t r o l g a m e s w a s p l e s iz e s h o w e d t h a t p l a y e r s f r o m S w e d e n h a d

s u b t r a c t e d f r o m e x p e r i m e n t a l E C E I v a l ue s t o n e a r l y t w ic e t h e a d j u st e d E C E I v a l u e s o f p l a y e rs

c r e a t e a d j u s t e d s c o r e s w h i c h w e r e u s e d f o r s u b s e - f r o m t h e U . S . t 0 .0 5 ,1 9 9 = 2 . 3 5 6 , P = 0 . 0 1 9 5 ) . E C E I

q u e n t a n a ly s is . T h e c o m m a n d a n d c o n t r o l s y s t e m w a s s i g n if i ca n t ly h i g h e r f o r n a t u r a l sc i e n ti s ts t h a n

g e n e r a t e d m o r e t h a n f o u r t im e s t h e a m o u n t o f f o r p o l i c y p r o f e s s i o n a l s ( to .o s,t0 3 = 2 . 19 , P = 0 . 0 3 1 )

w a s t e s p e r u n i t p r o f i t t h a n t h e a s s u r a n c e b o n d a n d w a s t h e o n l y t - t e st b e t w e e n o c c u p a t i o n s t h a t

s y s t e m t0:05,199 = - 5 . 1 4 , P = 0. 00 1 ). T h e r e w a s w a s s i g ni f ic a n t . H o w e v e r , a d j u s t e d E C E I s c o r e s

n o s i g n if i c a n t r e l a t i o n s h i p b e t w e e n a d j u s t e d E C E I i n c r e a s e d w i t h g a m e n u m b e r , a n d w h e n a n a l y z in g

a n d u n c e r t a i n t y d u r i n g t h e p r e p a y s y s t e m ( y = s c o r e s f o r f ir s t a n d s e c o n d g a m e s o n l y, n o s ig n if i-

3 . 95x + 7 .38 , F1 ,99 = 0 .9 4 22 , P = 0 . 33 4 1 ) n o r d u r - c a n t d i f f e r e n c e o c c u r r e d t0.05,61 = 0.978, P =

i n g t h e p o s t p a y s y s t e m ( y = 0 . 7 4 1 3 x + 2. 09 9 , F ] , 9 8 0 .3 3 2 ). T h e r e w e r e c o n s i d e r a b l y m o r e m a l e p l a y -

= 0 . 16 2 2 , P = 0 .6 8 8 ). A c o m p a r i s o n o f t h e r e - e r s t h a n f e m a l e s a n d , i n g e n e r a l , m a l e s p l a y e d

g r e ss io n l in e s r e v e a l e d t h e r e l a ti o n s h ip b e t w e e n m o r e g a m e s . A d j u s t e d E C E I m e a n v a l u es w e r e

E C E I a n d u n c e r t a i n t y w a s n o t s i gn i f ic a n t ly d i f fe r - s i g ni f ic a n t ly h i g h e r f o r m a l e s t h a n f o r f e m a l e s

e n t b e t w e e n t h e t w o c h a r g e s y s t e m s F 1 , 9 8 = 0 . 0 6 5 , ( t0 .05 .199 - - 2 .162, P = 0 .0318) , bu t on ly w he n

P > 0 .0 5 ). c o n s i d e r i n g a ll g a m e s p l a y e d . E C E I v a l u e s f r o m

T h e r e s u l ts o f t h e r e g r e s s i o n m o d e l s a r e s h o w n f ir s t g a m e s i n d i c a t e d n o s i g n if i c a n t d i f f e r e n c e b e -

i n T a b l e 1 . T h e r e w e r e h i g h l y s i g n i f i c a n t r e l a t i o n - t w e e n m a l e s a n d f e m a l e s ( t0 .0 5,7 0= 1.268, P =

s h ip s b e t w e e n a d j u s t e d E C E I v a l u e s a n d g a m e 0 .2 0 8 8) . L i k e w i s e , t h e r e w a s n o s i g n if i c a n t d i f f e r-

n u m b e r , c h a r g e s y s te m , a n d a g e f o r a l l th r e e e n c e b e t w e e n m a l e s a n d f e m a l e s f o r s e c o n d g a m e s

m o d e l s . T h e t i m e o f c h a n g e t o t h e p r e p a y s y s te m t0 .05,43 = 0.355, P = 0 .725) .

a n d u n c e r t a i n t y w e r e o n l y s i g n i f i c a n t i n t h e 8 -

v a r i a b l e m o d e l w h i l e o c c u p a t i o n , r e s i d e n c e , a n d

g e n d e r w e r e n o t s i g n if i c a n t i n a n y o f t h e m o d e l s . 4 . D i s c u s s i o n

T h e r e s u l t s o f t h e 5 - v a r i a b l e r e g r e s s i o n m o d e l f o r

p r e d i c t e d a n d a c t u a l E C E I v a l u e s a r e p l o t t e d i n A s e x p e c t e d , t h e a s s u r a n c e b o n d i n g p o l l u t i o n

F ig . 4 . I t is i n t e r e s t i n g t o n o t e t h a t a l t h o u g h t h e r e a b a t e m e n t s y s te m i m p r o v e d p l a y e r p e r f o r m a n c e

is a s ig n i f ic a n t r a n g e o f E C E I v a l u e s f o r b o t h w h e n m a n a g i n g a s i m u l a t e d f ir m . W e s u s p e c t t h is

c h a r g e s y s t e m s , a ll o f t h e h i g h e s t E C E I v a l u e s is d u e t o t h e i n c e n t iv e s t h a t t h is s y s t e m p r o v i d e s

( > 2 0 ) w e r e g e n e r a t e d d u r i n g t h e p r e p a y s y s te m , f o r t h e m a n a g e r s . C h a r g e s y s t e m is b y f a r t h e

m o s t i m p o r t a n t e x p l a n a t o r y v a r i a b le i n a ll o f t h e

m o d e l s . W h e n t h e c h a n g e t o t h e p r e p a y s y s te m

. Prepay ystem(withAssuranceBond) O cc ur s, p la y e rs a re in f o r m e d b y a p a u s e in th e

40 o Po,tpay y,ter, w,,outAssur,nceBoo~) s i m u l a t i o n an d an i n f o r m at i o n s c re en . Th i s a l l ows

3s p l a y e r s t o e v a l u a t e p a s t p e r f o r m a n c e a n d r e t h i n k

30 + ~ ..... ,,~o~,~ s t ra teg y . H ow ev er , co nt ra ry to ex pe cta t io ns , the

2s . %. ..~ - 5~ Prepaypo~n ,s oo ,y l eve l o f un ce r t a i n t y doe s no t s i gn i f i can t l y a f f e c t

LI I * ~ i~ ,11, ~ Pos tpay points only

20 ~ ~ ~ ] ~ U - p la ye r b eh av io r e xc ep t in t h e 8 -v ar ia b le m o de l.

~ 1 ~ T h e r e a s o n f o r t hi s m a y b e t h a t p l a y er s w e r e n o t

4- 10 [ . ~ g iv e n d ir e ct i n fo rm a ti o n a bo u t u n c er ta in ty le v e ls .

5 . .4

.......~ ~ o ~ ~ o o T h e y r e a c t e d t o u n c e r t a i n t y b y a s se s si ng m o d e l

o o u t p u t . I f p l a y e r s w e r e d i r e c t ly i n f o r m e d a b o u t

--10 lb 26 36 4~ un ce r ta in ty va lue s (e .g . , by sho w ing a m es sa ge a t

E EI t h e b e g i n n i n g o f t h e g a m e th a t in d i c a t e s y o u r

c h a n c e s o f g e t ti n g c a u g h t a n d / o r c h a r g e d f o r a

F i g . 4 . P l o t o f E C E I f o r t h e p r e p a y a n d p o s t p a y s y s t e m s

a g a i n s t t h e p r e d i c t e d v a l u e s f o r E C E I f r o m t h e 5 - v a r i a b le p o l l u t i o n v i o l a t i o n i n t h e p o s t p a y s y s t e m a r e

m o d e l . T h e o v e r a l l r z f o r t h e m o d e l w a s 0 .3 22 . X % ) , t h e y w o u l d h a v e t h e o p p o r t u n i t y t o d e -


11/14

L . C or nw e ll . R . C o s t a n z a / E c o l o g i c a l E c o n o m i c s l l 1 9 9 4 ) 2 1 3 - 2 2 6 223

v e l o p s t r a te g i e s a n d p e r h a p s w o u l d h a v e e n g a g e d l e a r n e d a s t h e y p l a y e d t h e g a m e ) . I t w o u l d b e

i n m o r e r is k y b e h a v i o r i f t h e p r o b a b i l i ty o f g e t t in g i n t e r e s t in g i n f u t u r e e x p e r i m e n t s t o p r o v i d e d if -

c a u g h t a n d c h a r g e d w a s lo w . I n f u t u r e e x p e r i - f e r e n t i n s t r u c t io n s e ts t o d i f f e r e n t p l a y e r s t o d e -

m e n t s , w e p l a n t o c o m m u n i c a t e m o r e i n f o r m a t i o n t e r m i n e h o w i n f o r m a t i o n a f f e c t s r e s u lt s . I n g e n -

a b o u t u n c e r t a i n t y l e ve ls d u r i n g t h e g a m e . e r a l, w e t h i n k t h is p r e l i m i n a r y a p p l i c a t i o n o f t h e

T h e s tr o n g ly s ig n if ic a n t r e la t io n s h i p b e t w e e n s i m u la t io n m o d e l / g a m e / e x p e r i m e n t a p p r o a c h

E C E I a n d g a m e n u m b e r s u g g e s ts t h a t p l a y e r s w a s q u i t e s u c c e s sf u l a n d s u b s t a n t i a t e d o u r m a i n

l e a r n a s t h e y p l a y e d m o r e g a m e s . T h e s i g n if i c a n t h y p o t h e s i s t h a t t h e p r e p a y s y s te m p r o v i d e s p l a y-

d i f f e r e n c e b e t w e e n m a l e s a n d f e m a l e s a p p e a r s t o e r s w i t h t h e i n c e n t iv e t o i m p r o v e t h e i r e c o n o m i c

b e a d i r e c t re s u lt o f n u m b e r o f g am e s p l ay e d , a n d e n v i r o n m e n t a l p e r f o r m a n c e in t h e g a m e w h e n

O n l y o n e f e m a l e p l a y e d m o r e t h a n t h r e e g a m e s , c o m p a r e d w i th t h e p o s t p a y s y s te m . T h i s e x p e r i -

A l t h o u g h c o m p u t e r li t e ra c y a n d f a m i l ia r i ty w i t h m e n t a l e v i d e n c e is b o l s t e r e d b y r e c e n t t h e o r e t i c a l

t h e M a c i n t o s h s y s te m w e r e n o t s u r v e y e d i n t h e r e s u l ts ( F a r b e r , 1 9 91 ). T h e e x p e r i m e n t a l a p -

g a m e , t h o se u n f a m i l ia r w i th c o m p u t e r s m a y h a v e p r o a c h to u n d e r s t a n d i n g e c o n o m i c b e h a v i o r h a s

i n it ia l ly b e e n i n t im i d a t e d b y t h e m a n i p u l a t i o n s t r e m e n d o u s p o t e n t i a l ( cf . S m i t h a n d W i l li a m s ,

r e q u i r e d t o p l a y t h e g a m e . T h e f a c t t h a t a g e is a 1 99 2) , b o t h a s a n a n a l y t i c a l t o o l a n d a s a t e a c h i n g

s i g n if i c a n t e x p l a n a t o r y v a r i a b l e a n d e x h i b it s a d e v i c e. T h e r e s u l ts o f t h e e x p e r i m e n t d e s c r i b e d in

n e g a t i v e c o e f f i c i e n t m a y b e a r e s u l t o f c o m p u t e r t h is p a p e r a r e p r e l i m i n a r y , b u t e n c o u r a g i n g .

p h o b i a . ' I t is a l s o i n t e r e s t i n g t o n o t e th a t , w h i l e W h i l e n o t c o n c l u s i v e , t h e y i n d i c a t e t h a t t h e p r e -

p l a y e r s f r o m S w e d e n h a v e s i g n if i ca n t ly h i g h e r p a y ( a s s u r a n c e b o n d i n g ) s y s te m m a y b e a n e f f e c -

E C E I v a l u e s t h a n p l a y e r s f r o m th e U . S. , w h e n t iv e i n c e n t iv e t o i m p r o v e a f i r m 's e n v i r o n m e n t a l

t a k i n g o t h e r v a r i a b l e s i n t o a c c o u n t ( i .e . , i n t h e b e h a v i o r . H o w e v e r , a s i n a n y h e a l t h y s c i e n c e , w e

8 - v a r i a b l e m o d e l ) c o u n t r y is n o t a s i g n i f ic a n t e x - f u l ly r e a l i z e t h a t w e h a v e r a i s e d m o r e q u e s t i o n s

p l a n a t o r y v a r i a b le . I n f u t u r e e x p e r i m e n t s w e p l a n t h a n w e h a v e a n s w e r e d a n d h a v e s e t t h e s t a g e f o r

t o i n v e s ti g a t e f u r t h e r t h e e f f e c t s o f c u l t u r a l b a c k - a d d i t i o n a l e x p e r i m e n t a l s t u d ie s i n t h e f u t u r e .

g r o u n d o n p e r f o r m a n c e .

T h e f a c t t h a t t i m e o f c h a n g e to t h e p r e p a y cknowledgments

s y s t e m is s i g n i f i c a n t i n t h e 8 - v a r i a b l e m o d e l a n d

a l m o s t s i g n i f i c a n t i n t h e 5 - v a r i a b l e m o d e l s u g - P a r t i a l F u n d i n g f o r t h i s p r o j e c t w a s p r o v i d e d

g e s ts t h a t t hi s v a r i a b l e i s p o t e n t i a l ly i m p o r t a n t b y t h e U . S . E P A , c o n t r a c t # C R - 8 1 5 3 9 3 - 0 1 - 0 , S .

a n d a l so r e q u i r e s f u r t h e r i n v e s ti g a ti o n . I n f u t u r e F a r b e r a n d R . C o s t a n z a , P r in c i p a l I n v e s t ig a t o r s ,

e x p e r i m e n t s w e p l a n t o a l lo w m o r e v a r i a t i o n i n t it le d : A F l e x ib l e E n v i r o n m e n t a l C o s t C h a r g i n g

t h e t i m e t o c h a n g e v a r i a b l e t o a v o i d c l u s t e ri n g a n d A s s u r a n c e B o n d i n g S y s t e m f o r I m p r o v e d E n -

o f v a lu e s in t h e m i d d l e o f t h e g a m e . I n c r e a si n g v i r o n m e n t a l M a n a g e m e n t . T h e a u t h o r s w o u l d

t h e s a m p l e s iz e o f p l a y e r s w i t h d i f f e r e n t o c c u p a - l ik e t o t h a n k g a m e p a r t ic i p a n t s a s w e l l a s P a u l

t i o n s a l so se e m s l ik e a v a l u a b l e e x e r c is e . T h e J iv o f f, L i s a W a i n g e r , E n r i q u e R e y e s , D a n M u s -

a m o u n t o f k n o w l e d g e o r i n f o r m a t i o n t h a t a p l a y e r s a tt i, C l e m T i s d e ll , a n d a n a n o n y m o u s r e v i e w e r

h a d p r i o r t o b e g i n n i n g a n y g i v en g a m e s e e m e d to f o r h e l p f u l c o m m e n t s o n e a r l i e r d r a f ts . O f c o u r s e ,

m a k e a d i f f e r e n c e i n p l a y e r p e r f o r m a n c e ( p l a y e r s a n y r e m a i n i n g e r r o r s a r e o u r o w n .


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224 L. Cornwell , R . Cos tanza /Ec o lo g ica l Econ omic s 11 (1994) 213- 226

ppendix

Appendix 1

Model symbol definitions

Symbol Definition

State L,ariables

Acc Env Fnd Accumulate d Environm ental Fund = Acc Env Fnd + dt * Env Res Fnd)

INIT Acc Env Fnd) = 0

Assets Assets = Assets + dt * Monetary inputs - Total Costs)

INI T As set s) = 50Q0

Assur Bond Assurance Bond = Assur Bond + dt * Deposits - Damage Deduction - Refunds + Interest - Env Res

Fnd)

INIT Assur Bond) = 0

Cure Dischar Cumulative Discharge = Cumm Dischar + dt * Discharged - Discharged Liabil)

INIT Cumm Discbar) = 0

Cum Env Damage Cumulative Environmenta l Damage = Cumm Env Damage + dt * damages)

INIT C umm Env Dama ge) = 0

Inventory Inventory = Inventory + dt * - Shipments + Production)

INIT In ventor y) = 100

Wastes Wastes = Wastes + dt * Waste Production - Discharged)

INIT Waste s) = 10

I n p u t s

Damages Damages = Discharged

Deposits Deposits into Bond = IF Del Charge > 0.1 THEN Worst Case Estimate ELSE 0

Discharged Wastes Discharged into the Environment = Wastes *0.5

Env Res Fnd Environm ental Research Fund = Interest * 0.8 - Int frac to firm)

Interest Interest = Assur Bond * 0.08

Monetary inputs Monetary Inputs into Firm Assets = Sales + Refunds

Production Level of Production = IF Usr Prod = 0 THEN Forcast Shipmts ELSE Usr Prod

Waste Production Amount of Waste Production = 1 + Production * 1 - WasteReduc Tech) * Waste Fraction)

O u t p u t s

Damage Deduction Damage Deduction = IF Charge System = 1 THEN 4 *Discharg ed * 1 - Uncert)) + 14nv Disaster * 1

- Uncert ) ELSE 0

Discharged Wastes Discharged into the Environmen t = Wastes *0.5

Discharged Liabil Discharged Liabili ty = 0.6 * Env Disaster

Env Res Fnd Environm ental Research Fund = Interest * 0.8 - Int frac to firm)

Refunds Refunds to the Firm = IF Charge System = 1 THE N Max Di sc ha rg es - Disc harg ed) + Int frac to

firm * Interest) E LSE 0

Shipments Shipments of Inventory = SMTHl Produ ct Demand,5,10)

Total Costs Total Costs to the Firm = Input costs + Depos its + PostPaid Dama ges

Exte rnal ~ ariables

Annual Profits Annual Profits = Monetary inputs - Total Costs

Charge System Charge System = IF T IME < T of Change to Pre) THEN Postpay ELSE Prepay

Del Charge Delay Charge = Charge System - DELAY Char ge System, l ,INIT Charge System))

Diaster Threshold Disaster Threshold = 70

Env Disaster Environm ental Disaster = IF Cumin Dischar * RAN DOM) > disaster threshold THE N Cumm Dischar

ELSE 0

Forcast Shipmts Future Shipments = FORCST Shipments,5,5)

Input costs Input costs = 1 * Unit Inp Cost + Unit Waste Red Cost) * Production)

Int frac to firm Fraction of Inte rest Ret urn ed to the Firm = 0.25

Marke t price Marke t Price = 8

Max Discharg es Maximu m Discha rge in any given year = 7

PostPaid Damages Environm ental Damages Occurring During the Postpay System = IF Charge System = 0 THEN 4 * Dis-

charg ed * 1 - Uncert)) + 14 *En v Disas ter * 1 - U ncert) E LSE 0


13/14

L. Cornwell, R. Costanza / Ecological Econ omics 11 1994) 213 -226 225

P o s t p a y A n I n d i c a t o r V a r i a b l e o f t h e P o s t p a y s y s t e m = 0 )

P r e p a y A n I n d i c a t o r V a r i a b l e o f t h e P r e p a y s y s t em = 1 )

P r o d u ct D e m a n d L e v el o f P r o d u ct D e m a n d = 3 + 4 * R A N D O M )

R a n d G e n e r a t e s n u m b e r s b e t w e e n 0 a n d 1 , r a n d o m l y

S a l e s S a l es = M a r k e t P r i c e * S h i p m e n t s

T o t a l W i t h d r a w T o t a l W i t h d r a w s f r o m t h e B o n d = R e f u n d s + D a m a g e D e d u c t i o n

T o f C h a n g e t o P r e T i m e i n t h e G a m e w h e n th e C h a r g e S y s t e m C h a n g e s t o P r e p a y =

I N T 2 0 + 2 0 * I N I T R a n d ) )

U n c e r t U n c e r t a i n t y = I N T I r a n d o m ) o r a n u m b e r i s s e l e c t ed r a n d o m l y b e t w e e n 0 a n d 1

U n i t I n p C o s t U n i t C o s t o f I n p u t s = g r a p h W a s t e F r a c t i o n ) . G r a p h i c a l P o i n t s I n c l u d e

0.0 ,0 .910), 0 .100,0 .745), 0 .200,0 .650), 0 .300,0 .550), 0 .400,0 .485),

0 .500 ,0 .440 ) , 0 .600 ,0 .395 ) , 0 .700 ,0 .355 ) , 0 .800 ,0 .335 ) ,

0.900,0.315 ), 1.00,0.300)

U n i t W a s t e R e d C o s t U n i t C o s t o f W a s t e R e d u c t i o n = g r a p h W a s t e R e d u c T e c h ) . G r a p h P o i n t s I n c lu d e

0 .0 ,0 .0200 ) , 0 .100 ,0 .0500 ) , 0 .200 ,0 .0800 ) , 0 .300 ,0 .120 ) ,

0 .400 ,0 .180 ) , 0 .500 ,0 .250 ) , 0 .600 ,0 .310 ) , 0 .700 ,0 .380 ) ,

0.800,0.495), 0.900,0.6651, 1.00,0.9501

U s r P r o d U s e r P r o d u c t i o n = T h i s v a r i a b l e a l l ow s p l a y e r s o f t h e g a m e t o o v e r r i d e t h e l e ve l o f f i r m p r o d u c t i o n s e t

b y t h e m o d e l

W a s t e R e d u c T e c h W a s t e R e d u c t i o n T e c h n o l o g y i s i n i ti a l ly s e t a t 0 .5 , b u t c a n b e c h a n g e d a t a n y t i m e b y t h e p l a y e r o f t h e

g a m e

W a s t e F r a c t i o n T h e P e r c e n t a g e o f I n p u t s t h a t e n d u p a s W a s t e = 0 .5

W o r s t C a se E s t i m a t e E s t i m a t e o f t h e W o r s t C a s e D a m a g e s = M a x D i s c h a r g e s * 2 0 0

e f e r e n c e s

c a t i o n s t o E n v i r o n m e n t a l , C o n s e r v a t i o n , a n d C o n s u m e r

A c k e r m a n , B . a n d S t e w a r t , R . , 1 98 5. R e f o r m i n g e n v i r o n m e n - P o l ic y . J o h n s H o p k i n s U n i v e r s i t y P r e s s , B a l t i m o r e , M D .

t a l l a w : t h e d e m o c r a t i c c a s e f o r m a r k e t i n c e n t iv e s . B o u l d i n g , K . , 1 96 6. T h e e c o n o m i c s o f t h e c o m i n g s p a c e s h i p

C o l u m b i a J . E n v i r o n . L a w , 1 3: 1 7 1 - 1 9 9 . e a r t h . I n : H . D a l y a n d K . T o w n s e n d E d i t o r s ) , V a l u i n g t h e

A d a r , Z . a n d G r i f f i n , J ., 1 9 76 . U n c e r t a i n t y a n d t h e c h o i c e o f

E a r t h . M I T P r e s s , C a m b r i d g e , M A , p p . 2 9 7 - 3 0 9 1 99 3) .

p o l l u t i o n c o n t r o l i n s t r u m e n t s . J . E n v i r o n . E c o n . M a n a g e . , B r o o k s , M . a n d H e i j d r a , B . , 1 98 7. R e n t - s e e k i n g a n d p o l l u t i o n

3 : 1 7 8 - 1 8 8 . t a x a t i o n : a n e x t e n s i o n . S o u t h . E c o n . J . , 5 4: 3 3 5 - 3 4 2 .

A t k i n s o n , S . a n d L e w i s , D . , 1 9 74 . A c o s t - e f f e c t i v e n e s s a n a l y s i s B u r r o w s , P ., 19 7 9. P i g o v i a n t a x e s , p o l l u t e r s u b s i d i e s , r e g u l a -

o f a l t e r n a t i v e a i r q u a l i t y c o n t r o l s t r a t e g i e s . J . E n v i r o n .

t i o n , a n d t h e s i z e o f a p o l l u t i n g i n d u s t r y . C a n . J . E c o n . , 1 2:

E c o n . M a n a g e . , 1 : 2 3 7 - 2 5 0 . 4 9 4 - 5 0 1 .

A t k i n s o n , S . a n d L e w i s , D . , 1 9 76 . D e t e r m i n a t i o n a n d i m p l e - C a r s o n , R . , 1 96 2 . S i l e n t S p r i n g . F a w c e t t P u b l i c a t i o n s In c . ,

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