Strategic Interaction and Incentives for Sustainable Economic Activity

C3bueroThe goal of research unit C3 in the first funding phase was to investigate “strategic interaction and incentives for sustainable economic activity.” Simply put, the goal was to investigate whether and when companies are likely to be willing to engage in sustainable economic activity. This research was carried out using two methods. First, it used the mathematics of game theory to model relevant economic situations. Second, it tested these mathematical models using economic laboratory experiments.
The work covered three separate work packages. Work package 1 investigated the behaviour of companies selling non-renewable resources such as oil or coal. Combining game theoretic analysis with results from laboratory experiments, the study revealed that companies tend to over-extract the resource and hence behave in a non-sustainable way. The results further showed that this problem is more pronounced when resources are still plentiful.
The second work package examined whether it may be beneficial for companies to over-comply with respect to existing environmental regulations. From a strategic perspective, over-compliance may help companies better satisfy consumers’ tastes for sustainability, thereby preventing collective action such as a boycott. This prediction is tested by means of a laboratory experiment, and the results are largely consistent with the theory. Thus, the results suggest that adopting more sustainable production methods may lead to increased profits for the firms.
Finally, the third work package examined the role of coordination problems in sustainable value creation networks. A laboratory experiment was used to study situations with different histories of sustainability and cooperation. If initial cooperation on sustainability can further facilitate subsequent cooperation, then the importance of an initial focus on sustainability is further emphasized. However, the results show that a history of initial cooperation had only a limited effect on subsequent cooperation. This led to a second experiment that investigated whether coordination failure can be avoided through communication. The results from this experiment suggest that agents often underestimate the value of communication, leading to excess coordination failure. Therefore, for value creation networks to function efficiently, it may be important to emphasize the value of coordination to its members.

Learn more about challenges, approach and results of project C3 in this Powerpoint presentation