The Integration of Altruistic Motives and Crowding-Out into Policy Making for Regenerative Common Pool Resource Use Dilemmas

Abstract

As behavioral economics has become an important input to economic theory in the recent past, when considering public good provision and common pool resource management, it is a logical consequence to include it into policy making and mechanism design for these scenarios, as well. This paper looks at the introduction of an optimal voluntary incentive mechanism to a scenario in which a regulator attempts the governance of a regenerative common pool resource. In the considered scenario, the actors derive utility from monetary gain, but their utility is also affected by the warm glow, derived from a conserving part of the resource for future generations, and their sentiment associated with the presence of a regulatory instrument. Ultimately, the aim of the paper is to show that when economic theory moves away from the definition of the resource appropriator as a ‘homo economicus’, this has implications for the optimal mechanism.