Economic Behavior in the Face of Resource Variability and Uncertainty

Abstract

"Policy design is largely informed by the traditional economic viewpoint that humans behave rationally in the pursuit of their own economic welfare, with little consideration of other regarding behavior or reciprocal altruism. New paradigms of economic behavior theory are emerging that build an empirical basis for understanding how humans respond to specific contexts. Our interest is in the role of human relationships in managing natural resources (forage and livestock) in semiarid systems, where spatial and temporal variability and uncertainty in resource availability are fundamental system drivers. In this paper we present the results of an economic experiment designed to explore how reciprocity interacts with variability and uncertainty. This behavior underpins the Australian tradable grazing rights, or agistment, market, which facilitates livestock mobility as a human response to a situation where rainfall is so variable in time and space that it is difficult to maintain an economically viable livestock herd on a single management unit. Contrary to expectations, we found that variability and uncertainty significantly increased transfers and gains from trade within our experiment. When participants faced variability and uncertainty, trust and reciprocity took time to build. When variability and uncertainty were part of the experiment trust was evident from the onset. Given resource variability and uncertainty are key drivers in semiarid systems, new paradigms for understanding how variability shapes behavior have special importance."