Taxation, observability and cooperation in a social dilemma with heterogeneous populations
Anca Mihut  1@  , Marie Claire Villeval  2@  , Lata Gangadharan  3@  , Daniel Brent  4@  
1 : Groupe d'analyse et de théorie économique  (GATE Lyon Saint-Étienne)  -  Website
Université Lumière - Lyon II
93, chemin des Mouilles 69130 Écully --- 6, rue Basse des Rives 42023 Saint-Étienne cedex 02 -  France
2 : Groupe d'Analyse et de Théorie Economique Lyon St-Etienne  (GATE LSE)
Université de Lyon
93 Chemin des Mouilles, 69130 Écully -  France
3 : Department of Economics, Monash University
Clayton, Australia. -  Australia
4 : Department of Economics, Louisiana State University
Business Education Complex, Baton Rouge, LA 70803-6306, U.S.A. -  United States

In the presence of a social dilemma, cooperation can be generally more difficult to achieve when populations are heterogeneous because of potential normative conflicts. We examine cooperation in the context of a non-linear common pool resource game, in which individuals have unequal extraction capacities and have to decide on their extraction of resources from the common pool. We introduce two types of policy instruments in this environment. One instrument is based on two variants of a mechanism that taxes extraction and redistributes the tax revenue to group members. The other instrument varies the social observability of individual decisions. We find that both tax mechanisms reduce extraction, increase efficiency and reduce inequality within groups. The scarcity pricing mechanism, which is a per-unit tax equal to the marginal extraction externality is more effective at reducing extraction than an increasing block tax that only taxes units above the social optimum. In contrast, observability impacts only the Baseline condition by facilitating free-riding instead of creating a moral pressure on group members.

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