Climate Change: Can we solve the collective action dilemma? by Roberto Gerhard

ECRM IC 2007
Climate Change: Can we solve the collective action dilemma?

Abstract
This essay analyzes the global warming problem form the so called rational choice point of view. Particularly I will comment on the Kyoto Protocol and why some states subscribe it and why others do not. The question underlying this situation is: if we know the current behavior is bad for our environment and ourselves, why don’t we change it. The concepts of path dependence and prisoner’s dilemma will be used to explain this behavior. The contribution of this essay lies not in the application of rational choice to explain the international community’s behavior; but in the explanation of the processes that induced a change in the player’s values. Thus, achieving a cooperative equilibrium.

Climate Change: Can we solve the collective action dilemma?

I'd like to share a revelation that I've had during my time here. It came to me when I tried to classify your species and I realized that you're not actually mammals. Every mammal on this planet instinctively develops a natural equilibrium with the surrounding environment but you humans do not.You move to an area and you multiply and multiply until every natural resource is consumed and the only way you can survive is to spread to another area. There is another organism on this planet that follows the same pattern. Do you know what it is? A virus. Human beings are a disease, a cancer of this planet. You're a plague and we are the cure. Agent Smith (The Matrix, 1999)

I. Are we truly a virus?

Global warming is a big issue, probably the biggest in the next 20 or 50 years. In spite of this fact many governments do not give it its due importance. This essay will try to offer some possible answers as to why this happens. It will be structured as follows. The first section will briefly indicate our current global situation: CO2 emissions rate and rising temperature rate. Then I will introduce some economical concepts that will help to understand this contradictory behavior. These concepts were developed in the 20th century: path dependence (developed by Douglas North) and the collective action dilemma (developed by John Nash). They would lead us to think that it will be almost impossible to reduce the world level of CO2 emissions. The logic behind of it is: why will I reduce my CO2 emissions if I can benefit from other countries doing it without having to bear its costs. So if all countries adopted this logic none would reduce its CO2 emissions level.

Agent Smith’s comment resumes very well the modern lifestyle.[1] It seems that the road we’ve started to walk will end up in a cliff and still we are marching on. We live in a fossil fuel dependent world, but that has produce, what in the economic jargon is known as, negative externalities. It means that may be you are very productive and you have a lot of jobs and many advantages in comparison with your previous kind of living. But, it has produced negative side effects. These effects are mainly large amounts of CO2 emissions. This is because whenever we use fossil fuels, or burn them, they release CO2 into the atmosphere. In the last 15 years we have had the hottest temperatures ever registered. Our CO2 emissions levels have had a 65% increase in the last 650 000 years, the artic ice has diminished 40% in the last 40 years. So, using Michael Glantz’s concept, it’s foreseeable that if we keep up with our current rate of CO2 emissions the Global Warming effects will get stronger: more severe droughts, bigger floods, mores frequent tsunamis, crops lost, desertification, canicules; in short, all the creeping environmental problems will surpass our possibility to do something about it.[2] Even if we stop producing all CO2 emissions today the global warming effects will be in the planet for another 60 or 100 years.

So, we can say that there’s a direct and positive relationship between global warming and CO2 emissions; this means that when one of this variables increases so will the other one. Another side effect of global warming is the rising of sea levels: as global temperature continues to increase the Artic and Antarctic ice layers will keep on melting, thus increasing the sea level. But why do we use fossil fuels? To answer this question it is very helpful to use the concept of “path dependence”, first used by Paul David (1985) and developed further by Douglas North (1991) calling it formal and informal institutions.

“A path-dependent sequence of economic changes is one of which important influences upon the eventual outcome can be exerted by temporally remote events, including happenings dominated by chance elements rather than systematic forces”[3]

“Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions and self imposed codes of conduct), and their enforcement characteristics. Together they define the incentive structures of societies and specifically economies. Institutions and the technology employed determine the transaction and transformation costs that add up to the costs of production.”[4]

Simplifying the concept, it means that what you do today is similar and depends on what you did yesterday. So, metaphorically speaking once your road, or direction, is chosen, your next step will probably be in the same road or direction. As we can see this is a very broad concept that helps us explain a lot, for example the reiteration of human conduct. The theory would predict that we will repeat an action even though it might not be the best among a set of options, just because we did it yesterday, and the more you repeat it the harder it is to change it.

So this concept is useful for our present analysis because it helps to explain why we continue to use fossil fuels. Because that’s the source of energy that we have used since the Industrial Revolution, and we will probably continue using it unless it finishes or an external shock occurs to the system. Thus, the problem is that we have developed a whole way of living around a source of energy that is becoming very destructive for ourselves. Moreover, we have a lot of important actors/players and interests that depend on the sustained use of fossil fuels – for example oil companies, oil exporting countries; oil is the main source of energy for almost every major city in the world, public and private transportation depend on it, and millions of jobs in the world depend on its exploitation. Sadly, all of this corroborates Agent Smith’s idea of us humans being a virus. As long as we cannot change our behavior and certainly knowing it’s harmful for us, then we might deserve this classification. So this leads us to pose another question that will be addressed in the following section, if we are rational beings, as we are supposed to be, why don’t we change our behavior?


II. Is rationality against our needs?

This is a big matter and does not have a simple answer. It is important to address this point because it’s easy to assume (or at least we would like to think) that the decision makers are rational actors. But what does rationality mean? From a rational choice perspective it means that actors (by actors I refer to individuals, states, organizations, etc.) have the intellectual capacity to think and choose, within their possible alternatives, the course of action that might bring them the highest payoff.[5] In this type of analysis individual choices matter and affect the options other actors will have. Furthermore, it means that actors are selfish, insatiable and capable of finding the best way to acquire their goals.[6] This section will use the Prisoner’s Dilemma (P.D.) to explain why most of the states have ratified the Kyoto Protocol thus escaping the collective action problem; and why some states have not.

When analyzing the current problem of Global Warming we can look at it under the scope of the P.D., a conceptual framework devised by Games Theory, often used to explain the dilemma of collective action. It draws from the following story to explain why individual actors, separately but taking into consideration what the other actor might do, will try to achieve their best individual payoff resulting in the second worst social scenario.

Table 1. Ranking of Payoffs in the Prisoner's Dilemma

Prisoner B
Prisoner A
Cooperate
Not Cooperate
Cooperate
(I) 3,3
(II) 0,5
Not Cooperate
(III) 5,0
(IV) 1,1
Source: Adapted from Soroos, 1994, p.326

The story goes like this: a sheriff catches two thieves for a minor felony and he is going to question them separately. Table 1 will help us to better explain the story and each player’s payoffs.[7] If both thieves cooperate with each other each would get six months in jail (scenario I, with a payoff of 3 for each player), but the sheriff offers them the option that if they tell on their friend (commonly known as non cooperative behavior) for major crimes they will do no time in jail and their friend will do 10 years (scenarios II and III in which the prisoner that told on his friend gets a payoff of 5 and the other gets 0). Finally, if each tells on each other they end up serving two years each (scenario IV with a payoff of 1 for each player).

The usual conclusion from this game is that both prisoners end up telling on each other ending up in the worst social scenario. We arrive to this outcome because of the dominant strategy, this means: Each player’s best option is not to cooperate, because, for example if the other cooperates and player A tells on him, he will go out and serve no time, if the other one tells on player A, the only way to reduce player’s A sentence is to tell on player B (this is the same for the other player). So regardless of what the other actor might do each player’s best option is not to cooperate.

Russell Hardin and Mancur Olson suggest that this game mimics the collective action dilemma because you can change the second player and suppose he represents all the other players.[8] The problem of collective action consists in the provision of a public good (fountains, parks, etc.). This means that everybody in the group or community will have free access to it; and its individual consumption won’t reduce the amount available for others to consume it. Why this problem resembles the PD? Because every actor makes the following calculus: I will be better off if I don’t cooperate, or pay for the collective good, and if they do provide it I will benefit from it regardless of having cooperated or not. So each actor thinks this way and thus the collective good, very often, is not provided because nobody cooperated and there are no means to exclude any actor from its’ consumption. According to Hardin, two of the most important conclusions drawn by Olson from his theoretical studies are that as long as you can not exclude certain actors from consuming a certain public good there will be no incentive to provide it, and secondly, the bigger the number of actors involved, the least likely it is that the public good will be provided.

We can model the global warming problem in this fashion (P.D.) because we are talking about the provision of a public good and who will bear the costs of providing it. Since there is no way for excluding the actors that do not cooperate from the benefits of reducing CO2 it will be very hard to achieve this goal. Besides, both rules that Olson pointed out are present in the current case of study: no way to exclude the actors who don’t cooperate and a big number of actors involved. For the Kyoto Protocol in particular we have the following situation: USA and Australia have not ratified it, plus China and India have signed it but are not required to reduce their CO2 emissions under the present agreement.

The main arguments these countries offer for not ratifying the treaty are economical and moral ones. The moral issue is why China and India are exempted from reducing their CO2 emissions when they are amongst the biggest producers, especially China (one of the fastest growing countries in energy consumption and CO2 emissions)[9]. The economic reason is that implementing such measures would imply the loss of many jobs for each country.[10] If we applied this logic to all international actors the outcome would be that none would ratify the treaty. This would mean that rational thinking as defined by rational choice would indeed be acting against our need. However, already one hundred and sixty-nine countries have ratified the treaty, so the real question is: why have other countries ratified the treaty, thus solving the collective action dilemma?

The most likely answer is that the payoff matrix is different, or that actors have internalized the long term costs of not changing their behavior now. There are, at least, four reasons to explain why there has been an increased international support to reduce CO2 emissions: 1) uncertainty about who will bear the worst part, 2) a repeated game, 3) a change in the actors’ values and 4) a contract. All these factors should produce a change in the payoff matrix, as will be shown in table two. Here the payoff of cooperating for all the parties is higher than not doing it, so we see that cooperation is the general equilibrium.

Uncertainty is very important because even though there is a trend and coming problems are foreseeable, it is not clear who will be a net looser or partial looser or net winner from an abrupt climate change. This means that risk adverse actors will prefer to defend the statu quo before going into a situation in which they might become net losers. Many countries with important cities in the coast or with economies heavily dependent on agriculture might face sever problems, just to mention broad characteristics of those who might loose from an increased global warming.

Table 2. Ranking of Payoffs in the Prisoner's Dilemma applied to the Kyoto Protocol

Prisoner B
Prisoner A
Cooperate
Not Cooperate
Cooperate
(I) 4,4
(II) 1,2
Not Cooperate
(III) 2,1
(IV) 1,1

Secondly, the repetition of the game is also a relevant factor. When a game is repeated indefinitely the rationale of the players is different. Is easier for the players to realize the payoffs of cooperating in the long term are better than the payoffs of not cooperating in the present. Thus cooperation becomes the equilibrium. In this case, countries will continue meeting each other in a series of different forums and negotiations. So, while politicians might change, citizens and countries will remain, which relates to the next point: a change of values.

Another explanation of this cooperative behavior would be that the values of the players have changed. This means that there has been an effort to make people more aware of the problem, thus it has become an important political issue for many democratic countries. The causal mechanism would be like this: NGO’s, UN and severe natural disasters have produce a change in the way many people perceive the current situation, the awareness of the problem has changed. It has become a political issue and political actors might be punished during elections day if they disregard this issue.[11]

Finally we could see the Kyoto Protocol as a “contract” trying to address all this fears. Contracts are important because they identify the parts involved and determine their responsibilities. This helps to reduce the uncertainty and induces cooperation between actors. From all of the factors mentioned above we could also add the real reasons behind their acceptance of the treaty. So, it might be possible that it is easier for the states that have ratified it to adopt such conduct, vis a vis USA and Australia. Tony Blair expresses this better:

"The blunt truth about the politics of climate change is that no country will want to sacrifice its economy in order to meet this challenge, but all economies know that the only sensible long term way of developing is to do it on a sustainable basis."[12]

As a brief conclusion we could argue that rationality would play against our interests if it were a one time game, but since it is repeating itself indefinitely there are a lot of factors that induce the perception of cooperation as rational. American and Australian behavior will be addressed in the final section of the paper.

III. Conclusion: Will the jungle law impose itself or will ideals strive?

Alexander Wendt said that anarchy is what States make of it. There is a school of thought in International Relations that defends the idea that States live under anarchy, in the Hobbesian use of the word, because there is no authority above them to make them adopt certain conducts. Furthermore, under this logic states live under constant mistrust of each other and the world is view as a “zero sum” game. That means the loss of one is another’s gain. In the end global, or regional hegemons impose their will over the international community.

Applying this theory to our current situation, it could be said that the US adopts this conduct because ‘they can’, and no one can tell them otherwise. At the present moment they are the undisputed military and economic power in the world. Under this same logic, Australia would be simply imitating the behavior of the biggest actor in the international system and aligning their policies.

But, there is another school of thought in International Relations that allow us to be optimistic. The Neoliberalism theory suggests that, as long as there are democratic institutions, a change in the States behavior is possible. They propose that the world should be perceived in terms of absolute gains. Their concern is in increasing the size of the cake, so to speak, not in how much cake is lost due to someone else’s behavior. Studying the current case under this light leads us to think that a change is under way. That is to say, since many states in the US have adopted policies similar to those of the Kyoto Protocol (Regional Greenhouse Initiative), we might expect that a change in their foreign policy be a result of their own democratic and federal system.[13] So, as long as this conduct spreads among the different states within the US, and this trend increases, the Protocol might be ratified by the American Federal Government. Ideals might win above power as more Americans realize about the importance of the problem and the great responsibility the US has regarding this issue. The final question is a matter of timing: will the international community take the necessary measures to prevent Global Warming in due time or will it be too late?

IV. Bibliography
Douglas C. North, Nobel Prize Lecture, December 9, 1993, Economic Performance through Time. http://nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html

Douglass C. North, 1991, “Institutions” in The Journal of Economic Perspectives, Vol. 5, No. 1, pp. 97-112.

Hal Varian, 2003, Intermediate microeconomics: a modern approach, New York: Norton.

John C. Harasanyi, 1994, “Games with Incomplete Information”, Nobel Lecture, December 9, 1994, Haas School of Business, University of California, Berkeley, USA

John Nash, “Non-Cooperative Games” in The Annals of Mathematics, 2nd Ser., Vol. 54, No. 2. (Sep., 1951), pp. 286-295

Marvin Soroos, 1994, “Global Change, Environmental Security, and the Prisoner's Dilemma”, in Journal of Peace Research. No. 31: 317-332

Michael Glantz and Zafar Adeel, 2000, “Climate Affairs as a Next-Generation Environmental Science” in Global Environmental Change, Vol. 10, pp. 81-85

Michael Glantz, “Six Concepts that I Want to Bring to the Attention of the Millenium Assessment (MA) Process”.

Michael Glantz, 1994, “Creeping Environmental Problems”, in The World and I, June 1994, pp. 218-225.

Michael Glantz, 2005, “What Makes Good Climates Go Bad?”, in Geotimes, April 2005, pp. 218-225.

Michael Glantz, 2004, “If You Don’t Pay, You Don’t Get to Play: The US and the Kyoto Process”, Michel Glantz homepage (Fragileecologies), http://www.fragilecologies.com/

Mike Hulme, 2003, “Abrupt Climate Change: Can Society Cope?” in Philosophical Transactions: Mathematical, Physical and Engineering Sciences, Vol. 361, No. 1810

Paul A. David, (1985) “Clio and the Economics of QWERTY”, in The American Economic Review, Vol. 75, No. 2, Papers and Proceedings of the Ninety-Seventh Annual Meeting of the American Economic Association. (May, 1985), pp. 332-337.

Rodger A. Payne, 1996, “Deliberating Global Environmental Politics” in Journal of Peace Research, Vol. 33, No. 2, pp. 129-136

Russell Hardin, 1982, Collective Action, London: John Hopkins University.

"Howard rejects emission targets", 2006, in BBC News Website, 2006-08-16. Retrieved on June 7th 2007. http://news.bbc.co.uk/1/hi/world/asia-pacific/4797339.stm

Catherine Brahic. 2007, "China's emissions may surpass the US in 2007", New Scientist, April 25, 2007. Retrieved on June 11th 2007. http://environment.newscientist.com/article/dn11707-chinas-emissions-to-surpass-the-us-within-months.html

Greg Mankiw's Blog (2007), “Climate Change as Repeated Prisoners' Dilemma” in Random Observations for Students of Economics, Saturday, April 14, 2007. http://gregmankiw.blogspot.com/2007/04/case-for-small-carbon-tax.html

Henderson, B. 2001. Path dependence, escaping sustained yield. Conservation Ecology 5(1): r3. [online] URL: http://www.consecol.org/vol5/iss1/resp3/

http://unfccc.int/essential_background/feeling_the_heat/items/2917.php

http://www.cide.edu/investigadores/aparicio/micro05.html

http://www.laurentian.ca/Laurentian/Home/Research/Special+Projects/Climate+Change+Case+Study/Quotes/Quotes.htm?Laurentian_Lang=en-CA

http://www.ministryofsound.com.au/ecard/prydz/A-Global-Warning.html

http://www.pnl.gov/aisu/pubs/sinusko04/conti.pdf

http://www.rggi.org/

Notes:
[1] It could be argued that previous civilizations managed to develop equilibrium with their ecosystem, like the Mayas, the Incas, Persians, Romans, etc.
[2] Michael Glantz, 1994, “Creeping Environmental Problems”, in The World and I, June 1994, pp. 222.
[3] Paul A. David, 1985, “Clio and the Economics of QWERTY”, in The American Economic Review, Vol. 75, No. 2, Papers and Proceedings of the Ninety-Seventh Annual Meeting of the American Economic Association. pp. 332.
[4] Douglas C. North, Nobel Prize Lecture, December 9, 1993, Economic Performance through Time. http://nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html

[5] This doesn’t mean that there is a collective rationality looking to find the common good.
[6] It is also necessary to say some of the assumptions made by economy and rational choice about rationality. In order to define it properly we must turn to the economic definition. Thus, a rational actor means that an individual’s, or an organization’s, preferences have the following characteristics: they are complete, reflexive and transitive. Complete preferences mean that every option is comparable to others; reflexive preferences mean that every option is, at least, as good as it self; and finally transitivity means that if you have three options A, B and C; and you think that A > B and B > C you could never think that C > A.
[7] To better understand the table it should be read the following way: each scenario has two payoffs (X, Y) the X payoffs go for player A and the Y payoffs go for player B. Marvin Soroos, 1994, “Global Change, Environmental Security, and the Prisoner's Dilemma”, in Journal of Peace Research. No. 31, p. 326

[8] Russell Hardin, 1982, Collective Action, London: John Hopkins University. Pp 16-37.

[9] China may become the world's greatest emitter of greenhouse gases before the end of 2007, says the International Energy Agency's chief economist. But that, he told New Scientist, is not the most worrying forecast. "The major issue for me is the long-term prospect. By 2030, emissions from China will be growing twice as fast as emissions from all of the OECD countries combined." (Catherine Brahic. 2007, "China's emissions may surpass the US in 2007", New Scientist, April 25, 2007. Retrieved on June 11th 2007. http://environment.newscientist.com/article/dn11707-chinas-emissions-to-surpass-the-us-within-months.html )
[10] “Mr [John] Howard [Australian Prime Minister] said the plan would harm the economy and lead to higher fuel prices. Australia is one of the few industrialised countries that has not signed the Kyoto protocol, which aims to tackle global warming through a reduction in greenhouse gas emissions. The Howard government has repeatedly said that signing the deal would harm the economy. At the moment, the majority of Australia's energy comes from coal and Australia is also the world's largest coal exporter. But Mr Howard told parliament the plan would lead to job losses and higher petrol, gas and electricity prices.” ("Howard rejects emission targets", 2006, in BBC News Website, 2006-08-16. Retrieved on June 7th 2007. http://news.bbc.co.uk/1/hi/world/asia-pacific/4797339.stm)
[11] It would be common for politicians to disregard this problem, because it has a high political cost and little present benefit in their career. The usual behavior regarding environmental policies is that of “sit and wait”. But if society sees it as a major issue politicians will have to take a stand about it and defend the interests of their constituencies. So the more prone to ecological issues the constituencies are; the more prone to this same issues their elected representatives should be.
[12]http://www.laurentian.ca/Laurentian/Home/Research/Special+Projects/Climate+Change+Case+Study/Quotes/Quotes.htm?Laurentian_Lang=en-CA (accesed June 11th 2007)

[13] The states that have adopted the Regional Greenhouse Initiative are: Maine, New Hampshire, Vermont, Connecticut, New York, New Jersey, Delaware, Massachusetts, and Maryland will join in June 2007. Also many important cities have adopted this initiative, such as: Boston, Chicago, New York, Los Angeles, San Francisco and Seattle, to mention a few.