Sharing Rules for Common-Pool Resources when Self-insurance is Available: an Experiment

N°: 
2011-07
Auteurs: 
M. Lefebvre

A laboratory experiment is used to analyze how the rule used to allocate a CPR in case of shortage impacts the individual trade-off between relying on a free but uncertain CPR and investing in a secure alternative resource, which constitutes a self-insurance. I compare three rules from the bankruptcy literature (contrained-equal awards, constrained-equal losses, proportional) and a rule that allocates no resource in case of shortage. I find that the best coordination institution towards the optimal level of self-insurance is the no allocation rule. However, efficiency and reliability are higher with the constrained-equal awards rule. Rules which are defined as a proportion of claims, such as the proportional and constrained-equal losses rule induce sub-optimal levels of self-insurance. Results are interpreted in the context of water management in France.

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