James J. Murphy

Kent D. Messer

English

Research Papers in Economics

 
Department of Economics Working Paper
WP 2010-03 
January 2010
Foreword: Special Issue on Experimental Methods  
in Environmental, Natural Resource  
and Agricultural Economics 
 
 
 
Kent D. Messer 
University of Delaware 
  
James J. Murphy 
University of Alaska Anchorage 
 
UAA DEPARTMENT OF ECONOMICS 
3211 Providence Drive  
Rasmuson Hall 302 
Anchorage, AK 99508 
 
http://econpapers.uaa.alaska.edu 
 1 
 
Nearly 20 years ago, Jason Shogren spoke at the Northeast Agricultural and Resource 
Economics Association (NAREA) annual meeting about how the burgeoning field of 
experimental economics might be useful in addressing questions of interest to environmental and 
resource economists (Shogren 1993).  When he spoke in 1992, experimental economics was a 
niche field that primarily focused on nonmarket valuation techniques, social dilemma games, 
bargaining experiments, and testing game-theoretic models.  As demonstrated in this special 
issue of the Agriculture and Resource Economic Review (ARER), things have certainly changed 
in ways that would have been hard to predict two decades earlier, including the 2002 Nobel Prize 
awarded to Vernon Smith, the 2009 Nobel Prize award to Elinor Ostrom, publication of a field 
journal dedicated to experimental economics, and significant expansion in the range of topics 
and methodological approaches. 
The changes that have occurred during the field’s rapid growth, which started in the mid-
90s and continues today, are evident in this issue’s 14 papers that were written by 40 researchers  
from 27 institutions located in 9 countries on 5 continents.  This special issue of ARER features 
primarily the papers presented at a methods workshop that sought to introduce young scholars to 
experimental economics techniques and to showcase examples of high quality research that 
addressed environmental, natural resource and agricultural policy issues.  Tim Cason and 
Shogren, two leaders in the field, delivered invited presentations.  This workshop followed the 
NAREA annual conference and was held in Burlington, Vermont, on June 9-10, 2009.  Financial 
support for the workshop and for publication of these papers in ARER was provided by the US 
Environmental Protection Agency, the Farm Foundation, and the US Department of 
Agriculture’s Economic Research Service.    2 
 
The papers in this special issue not only contribute to the classic experimental economics 
literature on nonmarket techniques and social dilemmas, but also illustrate how far the field has 
grown since the early 1990s.  The papers cover a wide range of topics from emissions auctions 
under the Regional Greenhouse Gas Initiative (Shobe et al. 2010) to managing a multispecies 
fishery (Anderson 2010), and use a variety of methods including traditional laboratory 
experiments, field experiments, and hybrid approaches, such as Knapp and Murphy’s (2010) 
field-in-the-lab approach and Bernard and He’s (2010) examination of how field prices impact 
bidding behavior for real items in a lab environment.  What is common in these studies is the use 
of what Shogren, Parkhurst, and Hudson (2010) refer to as an experimental “mindset” which 
seeks to better understand the behavior of individuals, businesses, and organizations within the 
context of various institutional settings. 
Shogren, invited to return as a keynote speaker for this workshop, noted how 
experimental methods have expanded from controlled laboratory settings with undergraduate 
students to include field experiments, neuroeconomics and virtual reality.  He discussed how 
behavioral economics has grown as a field and is now not only challenging parts of the 
traditional rational choice framework, but is also influencing economic policy makers at the 
highest levels.  In addition to this methodological growth, the application of experimental 
methods to environmental and natural resource issues also underwent significant expansion in 
the mid- to late-1990’s. Shogren’s 1992 talk roughly coincided with two significant events in 
environmental policy that helped broaden experimental research to include more applied policy 
issues. The 1989 Exxon Valdez spill substantially expanded the existing literature on nonmarket 
valuation techniques, particularly regarding hypothetical bias and the development of calibration 
techniques to mitigate its effects.  A key component of the 1990 Clean Air Act Amendments was 3 
 
the implementation of the US Environmental Protection Agency’s sulfur dioxide emissions 
trading program, one of the world’s first successful large-scale cap-and-trade programs, leading 
to a surge in experimental research related to the design of emissions trading programs and more 
broadly, on laboratory “testbedding” of new environmental policy initiatives. Testbedding of 
policies using experimental economics has been compared to using wind tunnels to test airplane 
design (Shogren 2004). 
The workshop’s other keynote speaker, Cason (2010), highlighted the growth in the use 
of experiments as testbeds for policy. Economics experiments are now providing valuable input 
into a wide variety of environmental, natural resource, and agricultural policy questions. Cason 
has been a major contributor to the emissions trading experimental literature, and his paper in 
this issue provides an excellent overview.  Emission trading institutions, in particular, have 
received renewed research focus as a result of interest in the development of markets for a 
variety of environmental services, such as greenhouse gas emissions.   
Both Cason’s and Shogren’s talks touched upon a theme that frequently emerged 
throughout the workshop and is still a hot topic of discussion within the field of experimental 
economics: the relative merits of laboratory and field experiments.  Around the late 1990’s the 
landscape of experimental economics underwent a significant expansion with respect to both the 
range to topics studied and the experimental methods used. Until this time, the overwhelming 
majority of experiments were conducted in laboratory settings with university students in the 
United States and Europe. There was a natural progression with a significant surge in field 
studies using non-student subject pools.
1 Joe Henrich (2000) was conducting field experiments 
with indigenous communities in Peru that laid the foundation for the 15 societies study which 
                                                 
1 Our point is not that these studies are the first of their kind; rather we note that around the late 1990’s is when these 
lines of research underwent significant growth. Peter Bohm is generally credited as one of the early pioneers in field 
experiments (Dufwenberg and Harrison, 2008). 4 
 
integrated ethnographic and experimental research in a cross-cultural comparison (Henrich et al. 
2004). John List was concurrently working with sportscard dealers and found that experience 
matters in market exchange environments (List 2000, 2001, and 2003).  
The participants in Juan Camilo Cardenas’ field experiments were rural villagers in 
Colombia whose livelihood depended upon successful management of a common pool resource.  
At the time, most experiments used neutral, context-free language to provide more experiment 
control. As Cason notes in this issue, the rationale for neutral framing was to reduce the 
likelihood that providing a context might unintentionally invoke certain preferences that the 
experimenter cannot observe. However, Cardenas was concerned that, in the absence of a 
context, subjects would introduce their own unobservable context leading to less control.  He 
argued that these villagers might bring a set of experiences and information about the context in 
a social dilemma that was quite different from that of university students (e.g., Cardenas, 
Stanlund, and Willis 2000, Cardenas and Ostrom 2004).  
This special issue features two field experiments conducted in developing nations. Alevy, 
Cristi, and Melo (2010) worked with Chilean farmers to test the properties of a right-to-choose 
auction. Prior to the experiment, the research team acquired actual water volumes that were then 
offered for sale to farmers in two different auctions.  Similar to Cardenas’ experiments, the 
commodity being auctioned (water) is essential for the subjects’ livelihoods and the experiments 
were framed using a context that was already familiar to the subjects.  Their results suggest that 
the right-to-choose auction raises more revenue than a sequential auction and that varying risk 
attitudes can explain much of the difference in bidding behaviors observed in the two auctions.  
The paper by Lybbert et al. (2010) has a development focus.  The authors note that their framed 
field experiments in Morocco, Peru and Kenya offer benefits not only to researchers seeking to 5 
 
understand how the poor respond to risk and to complex products, such as index insurance, but 
also the experiments provide an educational benefit by helping low-income farmers understand 
complex stochastic, dynamic processes. 
Cason’s (2010) paper discusses the merits of lab experiments, including the testbedding 
of proposed new rules and institutions, which is a focus of several papers in this special issue. 
For instance, Anderson (2010) tests a points-based system for managing the Northeast 
Multispecies Fishery that was proposed by an industry group.  The experimental results show 
that harvesters are broadly responsive to this system of point prices, especially those with 
experience.  Anderson concludes by suggesting that this type of system could be used to 
effectively manage a multispecies fishery to ensure acceptable economic and biological 
outcomes, assuming that the point prices can be readily adjusted over time.  Doyon, Rondeau, 
and Mbala (2010) test new auction mechanisms for tradable egg production quotas in Quebec. 
They show that in thin markets, such as those common in highly concentrated agricultural 
industries, that the Truncated k-Double Auction can help decrease equilibrium prices with only 
moderate efficiency losses, thereby helping counter potential market power from oligopolies.  
Shobe et al. (2010) focus their use of experimental auctions to examine issues related to the 
direct sale of carbon emissions in the Regional Greenhouse Gas Initiative.  Their paper tests the 
effects of “loose” and “strict” caps on the allocated allowances based on recent emission history.  
Their results suggest that auction revenue is lower compared to competitive benchmarks when a 
loose cap is used, but that these differences in revenue dissipate after a series of auctions.   
Other papers are motivated by contemporary policy issues even if not directly testing 
alternative policy instruments.  Hellerstein and Higgins (2010) use the US Department of 
Agriculture’s Conservation Reserve Program as the basis for their land conservation auction 6 
 
experiments.  Their experimental results show that while capping the maximum amount a 
landowner can receive in environmental markets may have intuitive appeal as a way of reducing 
government expenditures, these caps actually can lead to increase in expenditures.  The authors 
argue that relaxing restrictions on the maximum bids from landowners could yield better results, 
especially when the quality of the land enrolled in the program matters. Knapp and Murphy’s 
(2010) study of rent dissipation in competitive fisheries is motivated by the challenges faced in 
the Bristol Bay Alaska salmon fishery.  They use a novel, interactive experiment that “brings the 
field into the lab.” The task for subjects in their lab experiment was comparable to the field task 
under investigation—actively harvesting from a limited resource stock.  Subjects had to decide 
which harvesting device (measuring cups) to purchase, each of which had different harvesting 
capacities (cup size) and acquisition costs. The harvesting devices were then used to extract 
valuable items (dry beans) from a common pool resource (a large bowl).  Bernard and He (2010) 
examine how bidding behavior in lab experiments involving the purchase of food might be 
influenced by field prices before and after a large increase in the prices for these goods in the 
field.  Their results support the growing literature that suggests that researchers should be 
conscious of how field prices affect willingness-to-pay bids in experiments. 
Other studies in this issue have policy implications, but the motivation is more general. 
For instance, Spraggon and Oxoby (2010) add to the nonpoint source pollution literature by 
evaluating how recommendations about choices and the presentation of payoff information 
might affect behavior.  Their study suggests the ambient-based policy instruments can be 
significantly improved when decision errors are reduced by providing a more robust description 
of the decision environment.  Giordana et al. (2010) investigate the relationship between static 
and dynamic externalities in a common pool resource, which is a critical issue in managing 7 
 
groundwater extraction from coastal aquifers where overexploitation can lead to irreversible 
damage from seawater intrusion.  The results of their experiments did not support their initial 
hypothesis that the existence of static externalities would lead subjects to exhibit more pro-social 
behavior. Kotani, Messer, and Schulze (2010) use experiments to examine how changes in the 
incentive structure of tax refund and matching grant mechanisms leads to different level of 
voluntary contributions to public goods.  These authors argue that the “helping hand” that 
subjects provide through their contributions in settings that are not incentive compatible reflect a 
partial revelation of demand for the good in question and therefore should be accounted for in 
benefit-cost analyses related to environmental projects.   
Two studies address issues related to nonmarket valuation. Shogren, Parkhurst, and 
Hudson (2010) note in their paper that for controversial goods individuals may have either 
positive or negative values and study this within the context of willingness-to-pay and 
willingness-to-accept auctions.  The authors conclude by expressing concerns that for 
controversial goods, the existence of positive and negative values could result in an 
overstatement of the costs relative to the benefits. Finally, Caplan, Aadland, and Macharia’s 
(2010) research finds hypothetical bias in stated-preference public goods experiments in 
Botswana.  Although there is an abundance of hypothetical bias studies, this study is one the few 
that investigates this issue in a developing nation. 
In summary, this special issue illustrates the breadth of current application of 
experimental economics techniques to issues of importance to environmental, resource, and 
agricultural economics.  As Shogren departed from the two-day workshop, he reported what a 
pleasure it was to see how the “seeds” that the early pioneers of experimental economics help 
plant have now “blossomed.” 8 
 
 
References 
 
Alevy JE, Cristi O, Melo O (2010) Right-to-choose Auctions: A Field Study with Farmers in the 
Limarí Valley of Chile Agricultural and Resource Economics Review 39(1):?? 
 
Anderson CM (2010) An Experimental Analysis of a Points-based System for Managing 
Multispecies Fisheries. Agricultural and Resource Economics Review 39(1):?? 
 
Bernard JC, He N (2010) Confounded by the Field: Bidding in Food Auctions when Field Prices 
are Increasing. Agricultural and Resource Economics Review 39(1):?? 
 
Caplan AJ, Aadland D, Macharia A (2010) Estimating Hypothetical Bias in Economically 
Emergent Africa: A Generic Public Good Experiment. Agricultural and Resource Economics 
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Design? Agricultural and Resource Economics Review 39(1):?? 9 
 
 
Doyon M, Rondeau D, Mbala R, (2010)  Keep it Down: An Experimental Test of the Truncated 
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Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment.

Do static externalities offset dynamic externalities? An experimental study of the exploitation of substitutable common-pool resources.

Does Market Experience Eliminate Market Anomalies?

Experimental Economics & the Environment: Eliciting Values for Controversial Goods. Agricultural and Resource Economics Review 39(1):?? Spraggon J, Oxoby RJ

Incentive Mechanism Testbeds: Discussion.

Local Environmental Control and Institutional Crowding-out.

Mude A

Resource Economics Review 39(1):?? Hellerstein D, Higgins N

Voluntary approaches to transitioning from competitive fisheries to rights-based management: an experimental analysis. Agricultural and Resource Economics Review 39(1):?? Kotani K, Messer KD,

What can Laboratory Experiments teach us about Emissions Permit Market Design? Agricultural and Resource Economics Review 39(1):?? 9

Foreword: Special Issue on Experimental Methods in Environmental, Natural Resource and Agricultural Economics

http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201003.pdf

Foreword: Special Issue on Experimental Methods in Environmental, Natural Resource and Agricultural Economics

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