Bringing Biophysical Models into the Economic Laboratory: An Experimental Analysis of Sediment Trading in Australia

Experimental economics has emerged and matured as a formal method for questioning and stress testing economic theory and assumptions concerning individual behavior. More recently, experimental methods have been used successfully in an economic laboratory to test alternative environmental policy options. The data underpinning these experiments is often stylized or hypothetical in nature. Ecologists and experimental economics have much to gain by exploring ways to underpin economic experiments with data generated from biophysical models in terms of external validity and salient features of the issue at hand. The study makes a contribution by demonstrating how underpinning experiments with regionally modeled biophysical data may give insights which would not necessarily arise from stylized data. In this study sediment data generated from an Environmental Management Support System (EMSS), a software model of sediment runoff in catchments was used to populate the player decision space. The study investigated the relative performance of four different instruments (closed first and second price call tenders, cap and trade and command and control regulation) as mechanisms for promoting riparian management and reducing total suspended solids exiting a catchment and, as traditional auction structures, logical choices for exploring the consequences of incorporating modeled biophysical data. The study found unexpected insights into player behavior which may not have been foreseen from stylized data, suggesting that further exploration of integrated biophysical economic experiments is warranted.