No SDES-2014-14
Title Intergenerational games with dynamic externalities and climate change experiments
Author Katerina Sherstyuky, Nori Taruiz, Majah-Leah V. Ravagox, & Tatsuyoshi Saijo
Abstract Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers' actions may be short-sighted due to their limited incentives to care about the future generations' welfare. Second, even when the incentives are perfectly aligned across generations, increased strategic uncertainty of an intergenerational setting may lead to an increased inconsistency of own actions and beliefs about the others, making own actions more myopic. Intergenerational learning through history and advice from previous generations may improve dynamic e fficiency, but may also lead to persistent myopic bias.
Revised version published in Journal of the Association of Environmental and Resource Economists