Distributional Equity in Climate Change Policy: Responsibility, Capacity, and Vulnerability

44 Pages·2016·0.35 MB·English

Distributional Equity in Climate Change Policy:
Responsibility, Capacity, and Vulnerability1
Reuben Kline2, Aseem Mahajan3, Dustin Tingley4
March 7, 2016
1WethanktheHarvardUniversityCenterfortheEnvironmentandStonyBrook’sCenterforBehavioral
PoliticalEconomyforresearchsupport. Pleasedonotcitewithoutpermission.
2Department of Political Science & Center for Behavioral Political Economy, Stony Brook University,
[email protected]
3DepartmentofGovernment,HarvardUniversity,[email protected]
4DepartmentofGovernment,HarvardUniversity,[email protected]
Abstract
Bargaining over the allocation of costs to curb the effects of climate change has proven difficult,
as evidenced by repeated failures to reach an international agreement. Sadly, the longer it takes
to produce an agreement, the more likely it is that climate change will impose significant costs on
all countries. We argue that a successful agreement will allocate costs to countries based on three
dimensionsofdistributionalequity: theircapacitytopaytocurbtheeffectsofclimatechange,their
vulnerability to the negative effects of climate change, and their responsibility for causing climate
change. We introduce a novel and flexible bargaining game that is capable of incorporating all
of these factors. A laboratory experiment that employs this bargaining game suggests that states
with greater vulnerability to the effects of climate change have less bargaining power than their
counterparts, and that states with less capacity to pay to curb climate change correctly anticipate
that those with higher capacity to bear the costs will do so. More studies are needed to better
understand how distributional equity considerations shape climate change negotiations and how
thisnovelbargainingframeworkcanprovidethebasisforsuchinvestigation.
Keywords. ClimateChange,Equity,LaboratoryExperiment,Bargaining
1 Introduction
Anthropogenicclimatechange islikelythemostimportant anddifficultcollectiveactiondilemma
humankind has ever faced (Dietz et al. 2003). Despite the urgency of the problem, global climate
negotiationshavethusfarfailedtoachieveaneffectiveinternationalagreementonhowtheburden
of climate change mitigation will be shared across countries. One reason for this is that nego-
tiating positions are characterized by a number of distinct but interrelated equity considerations
that complicate its resolution. Furthermore, this bargaining takes place against the backdrop of
the increasing likelihood that failure to reach an agreement will make catastrophic climate change
more likely, therefore imposing significant, but potentially heterogeneous, costs on the parties
involved. The increasing probability of climate-change-induced catastrophic economic loss con-
stitutesaunique–andlargelyun-explored–strategicfeatureofclimatechangebargaining. Existing
bargaining models cannot adequately capture this crucial feature of bargaining in this important
context. Weintroduceanovelbargainingframeworkthatisthefirstmodeltocapturethispeculiar
featureofclimatechangebargaining.
There are three general equity principles that can inform the allocation of the costs to curb
the effects of climate change: “ability to pay,” “polluter pays,” and “beneficiary pays” (Hayward
2012).1 The three principles differ in the criteria they use to distribute the costs of curbing the
effects of climate change." These criteria are, respectively, concerned with the distribution of re-
sourcestopayforclimatechangemitigation(capacity),thedistributionofcausalresponsibilityfor
climatechange,andthedistributionofthenegativeeffectsofclimatechange(vulnerability). Each
country’s bargaining position at international climate change conferences should reflect its posi-
tion in all three dimensions (its capacity to pay, its responsibility, and its vulnerability). However,
becauseoftheendogenousrelationshipsamongcurrentwealthlevels,historicallevelsofpollutant
emissions,andtheseverityofclimatechange,itisdifficulttoobservehoweachdimensionshapes
a country’s bargaining stance. In other words, a country’s capacity, responsibility, and vulnerabil-
ity are most often not independent from one another. In particular, capacity and responsibility are
stronglypositivelycorrelatedwitheachotherandstronglyandnegativelycorrelatedwithvulnera-
bility.
1ThoughHaywarddefinesthebeneficiaryasthepartythatbenefitsfromthepollution,hereinthecontextofclimate
changewedefinethebeneficiaryasthepartythatbenefitsfromthemitigationofthepollution.
Thesedistributionalequityfactorsarethemselvesreflectedinthenegotiatinggroupsthatcom-
prise the UNFCCC, the institution that oversees the international climate negotiations. As in most
UNnegotiations,thereareregionalandothergeography-basedgroupings. However,intheUnited
Nations Framework Convention on Climate Change (UNFCCC), many groups’ membership is
based on the equity considerations we have highlighted. The Umbrella group (composed of de-
veloped countries) and the Least Developed Countries group are both defined by capacity (level
of economic development) and responsibility (developing countries are least responsible for cli-
mate change), whereas the Small Island Developing States (SIDS) and the Vulnerable 20 (V20)
representoverlappingsetsofcountriesthatarebothlow-capacityandhighlyvulnerable. So,these
distributional equity factors are not merely of academic interest: concerns about capacity, vulner-
ability, and responsibility, and their interdependence, permeate the official negotiating positions
of the parties. For example, Bangladesh’s UNFCCC negotiating document — officially known
as “Intended Nationally Determined Contributions” (INDC) — explicitly links responsibility and
vulnerabilityinthefirstsentence: “Bangladeshisahighlyvulnerablecountrywhoseemissionsare
less than 0.35% of global emissions.”2 Similarly, a key passage in Kiribati’s INDC links capacity
and vulnerability: “As one of the most vulnerable countries in the world to the effects of climate
change [Kiribati’s] ability to respond to climate risks is hampered by its highly vulnerable socio-
economic and geographical situation.”3 India’s INDC directly links capacity and responsibility:
“By enhancing their efforts in keeping with historical responsibility, the developed and resource
richcountriescouldreducetheburdenoftheiractionfrombeingbornebydevelopingcountries.”4
As the countries’ negotiating positions make clear, capacity, vulnerability, and responsibility
areinterdependent. Thusanyattempttomeasurethesecrucialdistributionalpreferencesinclimate
change mitigation policy must be able to disentangle the interdependent nature of the criteria, and
do so in the presence of the probability of increasing loss. In this paper, we introduce a novel
bargaining game framework that is flexible enough to take into account these interdependencies
andoperationalizethenotionoftheincreasingprobabilityoflossassociatedwithfailedbargaining
2http://www4.unfccc.int/submissions/INDC/Published Documents/Bangladesh/1/INDC_2015_of_
Bangladesh.pdf
3http://www4.unfccc.int/submissions/INDC/Published Documents/Kiribati/1/INDC_KIRIBATI.
pdf
4http://www4.unfccc.int/submissions/INDC/Published Documents/India/1/
INDIA INDC TO UNFCCC.pdf
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attempts. We investigate how changes in the parameter values of each distributional factor leads
to behavioral changes in an incentivized laboratory experiment. In particular, we are interested
in understanding both which factors impede successful negotiations and which factors affect the
distributionofcoststhatthepartiesarewillingtobear. Ourresultsshowthatallthreeofthefactors
are important determinants of bargaining behavior, and that vulnerability is especially important
forunderstandingbargainingundertheuncertaintyoffuturelosses.
Though there is an air of cautious optimism surrounding the ongoing UNFCCC negotiations,
successisfarfromcertain. Byintroducinganovelexperimentalbargainingframeworkthatallows
fortheisolationandmanipulationofthreeofthemostimportantandinterdependentdistributional
criteria in climate negotiations, this study can shed light on which negotiating strategies may be
moreorlesssuccessfulintheimminentnegotiations.
Thestructureofthepaperisasfollows. Section2describesourtheoreticalframeworkandhow
it builds on previous research. Section 3 presents our experimental design and Section 4 presents
our initial results. Section 5 concludes by highlighting the core contributions of the paper and
suggestsextensionsforfuturework.
2 Theory
2.1 Collective risk social dilemma
In the political economy literature, the most common way to model climate change mitigation
behavior is through the use of public goods games. Many use variations of standard linear pub-
lic goods games (e.g. Barrett & Dannenberg 2014, 2012, Hasson et al. 2012, 2010, among many
others). Other models public goods have been created specifically for the climate change con-
text. Among them is the collective risk social dilemma (CRSD), a behavioral political economy
framework that incorporates the notion of catastrophic economic loss in the event of a failure of
mitigation efforts (Milinski et al. 2008, Dreber & Nowak 2008). The CRSD is a threshold public
goods game of loss avoidance: players are randomly assigned to small groups and exogenously
endowed with an initial wealth level, portions of which can be contributed over multiple peri-
ods toward an exogenously given threshold value. If the group’s collective contributions meet or
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exceedthisthreshold,thegroupavoidsacollectivelossofearningsandallmembersretaintheun-
contributed remainder of their endowment. If the group’s collective contributions fail to reach the
thresholdvalue,themembersfaceanexogenousandknownprobabilityofclimatechange-induced
“catastrophic loss” (loss of the entirety of their retained earnings). The social dilemma arises, as
in all public goods games, from the incentive to free-ride in hopes that one’s group will meet the
thresholdthroughthecontributionsofothers.
Capacity, in the form of wealth inequalities, has been explored in a CRSD framework using
bothbehavioralgametheoryandcomputationalsimulation(Wangetal.2010,Milinskietal.2011,
Tavoni et al. 2011, Burton-Chellew et al. 2013, Vasconcelos et al. 2014, Abou Chakra & Traulsen
2014). Kline et al. (2014) introduce endogenous (causal) responsibility into the CRSD by making
thecostofclimatechangemitigationandtheprobabilityoflossendogenoustogroupwealthlevels
thataregeneratedinaprecedingcommonpoolresourcegame. Differentialvulnerability,however,
hasnottothebestofourknowledgeyetbeenincorporatedintotheCRSDframework.
While these studies have yielded important insights, there are limitations to what the CRSD
can do to model international climate negotiations. Most importantly, it fails to take into account
the offers and counteroffers that take place in international negotiations, which makes it difficult
toextractrevealedpreferencesovercapacity,vulnerability,andresponsibility,thedistinctdistribu-
tional equity factors we are interested in. To better model this aspect of climate negotiations, we
introduce an alternating offers bargaining model that is akin to a Rubinstein bargaining game. In
thestandardRubinsteinbargaininggame,twoplayersmakealternatingtake-it-or-leave-itoffersto
split a given amount of money, but the total amount available to split decreases with each rejected
offer. (Rubinstein 1982). In our variant, pairs of players must bargain over how to split the cost
of climate change mitigation, with the costs to be paid out of their respective endowments. We
incorporatetheprobabilityoflossconceptfromtheCRSDintotheRubinsteinframeworkbymod-
eling it as monotonically increasing in the number of rejected offers. We then introduce the three
distributional equity criteria into this basic bargaining framework. Table 1 describes each of these
explicitly.
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Table1: Distributionalconsiderationsinclimatechangepolicy
Capacity: some countries and populations
have more resources with which to combat
climatechange
Vulnerability: some countries and popula-
tions are more vulnerable to the effects of
climatechange
Responsibility: some countries and popula-
tions are more responsible for causing cli-
matechange
2.2 Climate bargaining game
To remove the endogeneity among capacity, responsibility and vulnerability and in order to inde-
pendently measure the strategic effects of distributional considerations on climate change negoti-
ations, we introduce a new bargaining framework. Crucially, this framework allows us to capture
the probability of catastrophic economic loss due to anthropogenic climate change as a parameter
in our model. Vulnerability can only be operationalized in a bargaining framework that allows
for something equivalent to increasing probability of loss. This feature of climate change negota-
tions introduces additional strategic considerations into the bargaining process and thus rendering
itqualitativelydifferentthanmanyotherbargainingscenarios.
TheClimateBargainingGame(CBG)introducedinthispaperisamodifiedversionofRubin-
stein bargaining. In our variation of the game, players begin the bargaining phase with an initial
endowment(whichmaydifferintheiramountandtheirorigin)andtheymustbargainoverhowto
splitthecostofclimatechangemitigation. Iftheyfailtoreachanagreement,thenbothplayersmay
sufferacatastrophiceconomicloss,i.e.,theylosetheirentireendowments,withsomeprobability.
This probability is increasing in the number of rejected offers, and the rate of increase is in some
cases asymmetric. The CBG allows us to capture the distributional considerations outlined above
withjustafewparameters,whichcanbemanipulatedtoshedlightondistributionalconcerns. We
implementthisnewbargainingframeworkinanincentivizedlaboratoryexperiment.
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3 Experimental Design and Treatments
For this experiment, a sample of 270 subjects was recruited from the general undergraduate pop-
ulation at Stony Brook University. The subjects played variations of the CBG, described in the
followingsections. Administeredoverthecourseoffourmonths,experimentalsessionswerefully
computerized and held at the Center for Behavioral Political Economy at Stony Brook Univer-
sity. Participants were paid a show-up fee in addition to payments from the experiment itself. A
summaryofsubjectdemographicsisprovidedinAppendixA.5
3.1 General model
The CBG has three parts: the allocation of initial wealth; the determination of the cost of climate
changemitigation;andthebargainingphasewithalternatingoffersanduncertaintywithrespectto
catastrophicloss. Weareabletoisolateeachofthekeydistributionalequityfactorsbymanipulat-
ingparametersacrossanumberofdistincttreatmentconditions.
All treatments begin with two randomly and anonymously matched subjects, Player A and
Player B. Each player is either exogenously or endogenously endowed (depending on the treat-
ment) with initial endowment levels. The players’ initial endowment levels are common knowl-
edge. After the initial endowment is awarded, players bargain, using alternating offers, over how
tosplitmitigationcostsbetweenthem. Thetotalcostofmitigationtobedividedbetweentheplay-
ers amounts to the average of the players’ initial endowments, equivalent to half the sum of the
initial endowments. After each rejection, there is some positive probability that each player in the
pair loses the entirety of their endowment. This probability of catastrophic loss, which may differ
acrossplayersineachmatch,increasesaftereachrejection. Inalltreatments,playersarerandomly
re-matchedforatotalof8matches.
In the description that follows below, the values of the initial endowments, the costs, and the
probabilityoflossarecommonknowledgetothesubjectsineachcondition.
In all treatments, Player A makes the first offer of how to allocate mitigation costs between
the two players. Player B can then either accept or reject the offer. In case of acceptance in a
5Across treatments, the distributions of subjects’ gender, age, and political affiliations are similar. Additionally,
subjectsholdsimilaropinionsondirectionandmagnitudeoftheeffectsofglobalwarming.
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givenroundt,eachplayerpaystheiragreed-uponportionofthecostsofclimatechangemitigation
and each player’s payoff is the difference between their initial endowment and their portion of the
acceptedallocationofcosts.
In the event of rejection, the game continues with probability 0.75. If the first draw from
the continuation probability distribution dictates that the game ends, then each player’s expected
payoff is their initial endowment multiplied by their probability of catastrophic loss after the t’th
rejection.
Ifthegamecontinues,PlayerBisthenabletomakeacounter-offerandthenPlayerAisgiven
the opportunity to accept or reject it. The procedures for and consequences of acceptance and
rejection are the same as in the first round, with the exception of the value of the probability of
catastrophicloss. Thisdynamicprobabilityisakeyfeatureofourdesign,representingthepotential
catastrophiceconomiclossthatisprojectedtoresultfromunmitigatedclimatechange. Suchaloss
ispossibleintheCBGaslongasnoagreementhasbeenreachedtosplitthecostsofclimatechange
mitigation efforts that would have prevented it. The longer agreement on the distribution of costs
of climate change mitigation is delayed, the greater the probability of catastrophic economic loss.
The probability, then, is a function of the bargaining history. In a particular match, as the tally
t of rejected offers increases, so does the probability of catastrophic loss. For a given player,
the probability increases by the same amount after each rejection. In all conditions, we allow a
maximumofeightrejectedoffers,sot =[1,2,3,4,5,6,7,8]. Thoughtheincreaseintheprobability
of catastrophic loss varies across conditions and players, it is always positive, and therefore the
probabilityoflossisalwaysstrictlymonotonicallyincreasinginthenumberofrejectedoffers.
We operationalize differential capacity by manipulating the initial endowments, such that the
initial endowment of Player A is greater than the initial endowment of Player B. Manipulations of
each player’s probability of catastrophic loss and the amount by which it increases represent dif-
ferentialvulnerability. Here,weconsiderthecaseinwhichPlayerB’sprobabilityofcatastrophic
loss is higher than that of Player A and increases by a greater amount after each rejected offer.
Player B, then, is more vulnerable than Player A. We incorporate causal responsibility by allow-
ing Players A and B to choose their own endowments. Because the cost of mitigation amounts to
the average of the initial endowments, mitigation costs increase with each player’s selection of a
higherendowment. Nextwedescribeeachofthesemanipulationsindetail.
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3.2 Treatments
3.2.1 Baseline
We are interested in the effects of manipulating total initial endowments, the probability of catas-
trophic loss and its rate of increase, and total mitigation costs, which result in asymmetries in
capacity,vulnerability,andresponsibilitybetweenPlayersAandB.Inthebaselinetreatment(BL),
each factor is symmetric and exogenous, which gives us a baseline to which we can compare our
treatmentconditions.
Inthisconditioninitialendowmentsareexogenousandfixedat100foreachplayer,resultingin
climatechangemitigationcostsof100. Ratherthanexplainingthatmitigationcostsareanaverage
of each player’s endowment, players in this condition are simply told that the cost is 100. This
is necessary because we want to ensure that responsibility and capacity are, in the minds of the
players, independent from one another in the BL condition and thus we do not want subjects to
construethatthelevelofinitialendowmentsiscausinganincreaseintotalmitigationcosts.
The BL value for the probability of catastrophic loss for both players is 0.2 for each player
and increases by 0.1 after each rejected offer. If all eight possible offers were rejected, then each
player’sprobabilityofcatastrophiclossattheendofthematchwouldbe0.9andexpectedpayoffs
for each player would be amount to 90% of the initial endowment. A vector of the probability of
catastrophiclossovertimeforeachplayerunderBL is (0.2, 0.3, ...0.9).
Recall, however, that even if an offer is rejected in roundt, the associated probability of catas-
trophiceconomiclossisonlyactivatedifthegameends,whichoccurswithprobability0.25ifthe
offer is rejected. If the end of the game is reached due to rejection in roundt, the payoff for each
player is the probability of catastrophic loss multiplied by the initial endowment. If the end of
the game is reached due to an accepted offer, the payoff for a player is the difference between the
initialendowmentandtheportionofthemutuallyacceptedallocationofcosts.
Next,wedescribetreatmentsinwhichvariousaspectsofthebaselinescenarioaremanipulated
inordertoisolateourconceptsofinterest. Alltreatmentsarebetween-subjects.
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