In the Introduction, we discussed the foundation of a cowboy economy, a concept brought to life by economist Kenneth Boulding. In Part 1, we dove into how water is distributed to support cranberry bogs – Massachusetts’ largest agricultural crop. In the third installment, we applied Game Theory to observe how Best Management Practices affect the conservation of resources like water. In this final installment, we’ll discuss how economic concepts like Pareto Efficiency can influence our decision to assume abundance.
If we conduct an analysis of the game presented in Part 2, we can see that both Cranberry Grower 1 and Cranberry Grower 2’s dominant strategy is to implement the WCS BMP. Because both Cranberry Growers share the same dominant strategy, both Cranberry Growers prefer a 13.9. At this payoff, there exists efficiency in production, as both players maximize their yield, and there is efficiency in consumption, as both players can now sell more cranberries which will be distributed to and eaten by the population at large. Thus, because there is efficiency in production, efficiency in consumption, and therefore efficiency in both consumption and production at the payoff (13.9, 13.9), this is also the Pareto-efficient choice. Pareto efficiency is an economic concept that describes a decision in a game where neither player can improve their payoffs without harming the other player. Hence, if both Cranberry Growers choose to implement WCS BMPs, they will maximize both players’ payoffs without sacrificing the others’ well-being causing this to be the Pareto efficient choice. In addition, it also happens that the dominant strategy equilibrium of this game is also the social optima because it provides the highest total payoff of 27.8. So, if both Cranberry Growers choose to implement WCS BMPs they are doing the best for themselves and society.
This game is built on the fact that both Cranberry Growers are governed by the same written rules: they each follow U.S. law, which includes not encroaching on or stealing from the other grower’s private property (their bogs). We can analyze the unwritten rules of the game based on the decisions of the players. Because WCS BMP is both the social optima and the dominant strategy equilibrium, the growers could have altruistic preferences, which would govern them to choose the payoff that also benefits the other player. In addition, the growers could be governed by fairness and reciprocity so each will either want the other to also implement WCS BMP or to also ignore WCS BMP. The game allocates a larger payoff to the player who has implemented WCS BMP despite what the other grower does, so if the other player ignores WCS BMP, it causes both players to be stuck at a Pareto-inefficient allocation. So, even if the players are governed by their own self-interest, they will each follow their dominant strategy to choose WCS BMP.
Because implementing WCS BMP is not federal law but rather guidance from a regulatory authority, there is a lack of formal institutions to encourage both players to implement WCS BMP and retain their highest payoff. However, the grower who implements WCS BMP will eventually hold more power, because the grower with WCS BMP is able to produce and sell more cranberries than the grower ignoring WCS BMP ever will. So, if one Cranberry Grower chooses to ignore WCS BMP, the other grower who implements WCS BMP will lose out on some of their payoffs, but overall, the player who implements WCS BMP will always be better off than the player who ignores WCS BMP.
As with many environmental solutions, being sustainable provides a better payoff but is often unenforceable. By demonstrating how implementing WCS BMP will benefit the grower despite what the other grower decides, there is hope that both the Cranberry Growers will see that sustainable water management practice is the Pareto-efficient choice to support their cranberry bogs. When we show the benefit of implementing Best Management Practices on the individual level, we put a stop to our assumption of abundance and enable collective action for a more sustainable future.
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