Vecon Lab Water Externalities Game ("Tragedy of the Common Canal"): Introduction

This program sets up a multi-person game in which people are given sequential locations along an irrigation canal. Each person has a number of fields with differing productivities. Irrigation increases the intrinsic productivity of each field, but there is not enough water for downstream users if upstream users irrigate all of their fields. Options for controling over-use include group discussions, usage fees, Coasian bargaining, or auctions for irrigation permits. Students are typically surprised by the discovery that a tax (which users may oppose) can be beneficial to the group as a whole when the fee revenues are returned. Class discussion can focus on efficiency, i.e. the actual value of the harvest as a percentage of the maximum that could be achieved if water were allocated to fields with the highest productivities. See "Tragedy of the Common Canal," (C. Holt, K. Johnson, C. Mallow, and S. Sullivan) Southern Economics Journal, 2012: 1142-1162.

The gray line in the graph shows efficiency predictions for the case in which water is taken by upstream users whenever it is available. Irrigation decisions in the first three rounds resulted produced this "selfish" outcome, as indicated by the three blue dots. In contrast, permits were auctioned off in the second treatment, and this market solution raised efficiencies sharply.
Copyright 2009, Charles Holt, Please report problems and suggestions: veconlab@gmail.com

Vecon Lab - July 17, 2019