Commons as a Risk-Management Tool: Theoretical Predictions and an Experimental Test

Common-pool resources (CPR) are frequently used as risk-management tools against risk on private activities. The impact of this safety-net use of CPR on the individual investment into and extraction from the commons is analyzed in this paper. Agents of the community first choose to invest in their private project and in the CPR; second, they choose how much to extract from their private project and the commons. The model compares two types of risk-management tool: CPR as (ex post) risk-coping and (ex ante) risk-diversification mechanisms. It also compares two situations regarding risk: risk on a private project and uncertainty on CPR investment by other community members. The theoretical predictions are empirically tested with experimental economics. To this end, we propose an original CPR game composed of an investment period and an extraction period. Our result clearly shows that risk reduction in the private project unambiguously decreases investment in the CPR, while it does not impact CPR extraction. We also show that a risk-coping strategy is well understood as more flexible and influenced by the outcome in terms of private project yield.