Final Report Breaking through the Equity Barrier in Environmental ...

Figure 6.1 Grading scale for equity judgments.
Please give your degree of AGREEMENT or DISAGREEMENT for each of the policy statements below by putting an
‘X’ somewhere on this scale:
–10 = I totally and very strongly disagree and would fiercely oppose this policy
0 = I am unsure
+10 = I totally and very strongly agree and would energetically support this policy
In order to do this, each equity principle must be translated into a real monetary allocation.
Participants differ according to some chosen parameter, in this case, their monetary
endowments, the initial allocation of which has been determined randomly. To allow for equityefficiency
trade-offs, participants’ endowments differ in their social productivity. This means that
every extra dollar earned by an individual player generates a different amount of money in the
collective bank. The total surplus therefore created, net of initial endowments and of the amount
distributed, goes to increase the amount to be allocated in the next round.
The maximum efficiency allocation is the one that maximises the total social productivity of all
earnings. This productivity has been made to be proportional to the size of the initial endowment.
That is, richer participants contribute more than poorer participants to the total amount of
money available for the next round. This fact is known by all from the outset. We implement the
simplest and most extreme case, where the maximum efficiency allocation means giving all the
money in the current round to only one participant, the one initially most richly endowed but
also socially the most productive. This is likely to be perceived as the most inequitable allocation
imaginable!
Inequality related principles
w Egalitarianism: Equal payments are made (in one direction or the other) to all participants
identically, irrespective of their individual endowments.
w
w
Maxmin: Payments are made only to those participants whose endowments are above (or
below) a certain threshold. The actual threshold is determined only if this principle wins. In
that case, participants make proposals and the average is used to set the threshold.
Inter-generational equity: This is a tricky one to implement, but may be done as follows.
If chosen, a certain proportion of the monies paid in this session are withheld for the final
session, and will be paid:
a) in priority to those who are worse off than they started, if there are any; and
b) if there aren’t any, equally to the N lowest winners, N being determined randomly.
The proportion to be transferred into the future is drawn randomly between 10% and 100%. If
at the end there is less money transferred than total net losses among those worse off, then
equal shares will be distributed.
Note: The implementation of this principle may also be done by transferring money to
future and different participants, provided that this transfer generates extra money. Such an
approach introduces altruism, which is mostly absent from the one we have chosen; instead,
it may function as a collective insurance scheme.
92 Breaking through the Equity Barrier in Environmental Policy