"Follow the data" -- What data says about real-world behavior of commons problems
68 Pages Posted: 22 Nov 2017
Date Written: August 29, 2019
We test the game-theoretic foundations of common-pool resources using an individual-level dataset of groundwater usage that accounts for 3% of US irrigated agriculture. Using necessary and sufficient revealed preference tests for dynamic games, we find: (i) rejection of the standard game-theoretic arguments based on strategic substitutes, and instead (ii) support for models building on reciprocity-like behavior and strategic complements. By estimating strategic interactions directly, we find reciprocity-like interactions drive behavior more than market and climate. Taken together, we take steps toward developing more realistic models to understand groundwater usage, and related issues pertaining to tragedy and governance of the commons.
Keywords: common-pool resource, groundwater, revealed preference theory, panel data, identification, reciprocity
JEL Classification: C73, D01, D03, Q25
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