Experimental Methods in the Political Economy of Exchange

Economic experiments support Ostrom's polycentric approach to mitigating climate change

The late Nobel laureate Elinor Ostrom envisioned a polycentric approach to mitigating climate change rather than a centralised solution. Debating about global efforts to solve climate-change problems has yet not led to an effective global treaty. Ostrom argued that instead of focusing only on global efforts, it is better to encourage polycentric efforts to reduce the risks associated with the emission of greenhouse gases. Many problems conceptualised as 'global problems' are the cumulative results of actions taken by individuals, families, small groups, private firms, and local, regional, and national governments. Ostrom and colleagues pointed to many examples of successfully managing a common good through interaction within a community. Energy-saving actions undertaken by individuals, families and actors at a small-scale pay off and, when multiplied, may reduce emissions globally. The incentive to achieve an individual net gain may trigger human investment decisions. Here we provide experimental support for Ostrom's basic ideas using methods of experimental economics. By subdividing experimental populations in subgroups that approach sub-goals of mitigating simulated dangerous climate change combined with incentives, the 'global' solution is achieved by combined subgroup contributions exceeding the 'global' threshold for averting simulated dangerous climate change. Incentives from refunded saved energy motivate reaching sub-goals, as Ostrom suggested. By contrast, coercing free-riding subgroups through sanctioning at a cost fails, because sanctioning also hits fair individuals who then reduce their contributions. However, the power of polycentricity with numerous successful units can help mitigate climate change.