Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 416: Climate Change in a Public Goods Game: Investment Decision in Mitigation versus Adaptation

Reviva Hasson (), Åsa Löfgren () and Martine Visser ()
Additional contact information
Reviva Hasson: Department of Economics, Faculty of Commerce, University of Cape Town, Postal: Private Bag, Rondebosch, 7701, South Africa
Åsa Löfgren: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Martine Visser: Department of Economics, Faculty of Commerce, University of Cape Town, Postal: Private Bag, Rondebosch, 7701, South Africa

Abstract: We use behavioral and experimental economics to study a particular aspect of the economics of climate change: the potential tradeoff between countries’ investments in mitigation versus adaptation. While mitigation of greenhouse gases can be viewed as a public good, adaptation to climate change is a private good, benefiting only the country or the individual that invests in adaptation. We use a one-shot public-goods game that deviates from the standard public-goods game by introducing a stochastic term to account for probabilistic destruction in a climate-change setting. Probability density function is mapped to within-group levels of mitigation. We compare low-vulnerability and high-vulnerability treatments by varying the magnitude of disaster across treatments. Our results show that there is no significant difference in the level of mitigation across these treatments. Further, our results emphasize the important role of trust in enhancing cooperation.

Keywords: Public good; climate change; mitigation; adaptation; experiment; risk

JEL-codes: D03; H41; Q54

24 pages, December 8, 2009

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