Managing water resources under scarcity: the role of social norms

ABSTRACT

We develop a framework that quantifies the effect of social norms on the efficient functioning of institutions and thereby their impact on effectiveness of reforms for sustaining common pool water resources under conditions of scarcity. We derive theoretical results and use numerical simulations to provide evidence for performance of a group of farmers that use a common pool resource (reservoir or aquifer) with and without norms, with various marginal utility levels from norm adherence, and with various existing (Social Planner) institutional setting considered in the theoretical model. The theoretical results suggest that with no water trade and with norm adherence, water users will always use less water than the no norms scenario. With possible inter-group water trade, norm-adhering water users would replace excess extraction with increased trade rates. Simulation results for the no-trade case suggest that with higher marginal utility values from norm adherence, the resource is sustained for significantly longer periods.

KEYWORDS:

• Institutions
• social norms
• water scarcity
• common pool resources
• social choice
• agriculture

Acknowledgments

Co-funding for the research leading to this paper was provided by the Water Science and Policy Center, University of California, Riverside. We thank Daniel Bromley for very constructive comments on an earlier version of the paper. Ariel Dinar would like to thank the Lady Davis Trust and the Center for Agricultural Economics Research at the Department of Environmental Economics and Management, the Hebrew University of Jerusalem, Israel, for financial support and hospitality during the stage of finalising of this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Norms dictate the way individuals interact with each other or with the existing social institutions. World Bank's CommGAP (2009) report explains that norms are the beliefs, both real and perceived, regarding expected behaviour in specific contexts, especially under conditions of uncertainty. While social institutions are the existing social regulations across societies, social norms are the socially (real and perceived) valid actions (and reactions) in any given situation.

2. Ostrom calls these agents conditional cooperators, as their adherence to the norm is conditional upon simultaneous adherence of the norm by at least a critical number of agents.

3. Participation and cooperation in management of CPWR by farmers is dictated by a combination of factors, including the local politics, incentives, socio-historical factors, and distribution of CPWR endowments among beneficiaries. We recognise that inclusion of only social norms is a simplification of the multiple factors involved.

4. Explanation for the single constraint: by the stock dynamic assumption and . Therefore, . This means that . Combining the resource exhaustion assumption we get , which is a subset of the first constraint. So, by combining the three constraints into one we can reduce the Lagrangian.

5. In the absence of social norms, this FOC becomes .

6. Which in the case of no social norm will become , implying that the loss of marginal utility with lesser water use in any period can be compensated by the increase in marginal utility in the terminal period.

7. The inter-agent Euler equation for the Nth period is: .

8. These may be considered as necessary conditions for our derived implications from the inter-temporal Euler conditions. , is the necessary condition for the same implications.

9. As .

10. This assumption will not affect the general nature of the results unless we assume differential levels of pumping cost.

11. This cannot be a condition for utility maximization as this condition is assumed to be not imposed and even if it is informally imposed it cannot be completely monitored.

12. Because ; we get .

13. The norm term is for all non-terminal periods and for the terminal period.

14. For convenience, the simulation can be scaled up to a larger population given sufficient computational resources.

15. Price of output , price of water , share of water in the value of production N = 10.

16. In setting the length of our analysis period we were guided by the 200 years used in Ranjan (2010).

17. The simulation process revealed an interesting problem. As the norm of resource use in our model is static and not a function of the decreasing stock, the agents in the simulation were consuming miniscule amounts of the resource until the last period (presumably infinity) without completely exhausting the resource. The inter-temporal Euler Conditions were also not satisfied beyond the point where the marginal utility from profit was exceeded by the marginal utility from norm adherence. By consuming minute amounts of the resource the agents were maximising their utility in perpetuity. To resolve this issue we introduced a ‘stock lower limit’ on the resource stock. When the stock was reduced to this lower limit, beyond that period there was no more utility received from norm adherence. This forced the agents to terminate their optimisation process and completely exhaust the resource, as is expected from rational agents in a resource use game. The resulting resource use values also satisfied the inter-temporal Euler Conditions.

18. Tested for stock lower limit values of 1, 0.5 and 0.3. See Figure 2 and Table 2 and relevant description.

19. With slower declines for the cases with higher marginal utility for norms. As seen in Figure 1, the resource use curves for kappa = 5, 10 display flatter slopes and slower decline. Whereas for kappa = 1, the slope is steeper and similar to the ‘no norm’ curve.

20. Kappa = 5, 1.

21. For kappa = 5. For kappa =1 and 10, see results in Table 3.

22. Assuming positive value for marginal utility from norm adherence.

23. We were unable to produce results due to non-convergence of these simulations, as our computational capacity was insufficient. However, the empirical model with adjustments for inter- and intra-trade is presented in this Appendix.

24. where .

25. where .

26. where .

27. where

28. Whose profit function is .