Marco Casari

Historically, shocks originating in the financial sector often spilled over into the real sector with dramatic consequences. We study in the lab how interventions targeting disclosure and capital requirements of financial intermediaries can reduce insolvencies or prevent their negative effects from propagating to the broader economy. In our two-sector economy, consumers and producers can fund financial intermediaries, who, in turn, provide them with liquidity to settle trades. However, intermediaries may undertake risky investments and become insolvent, which depresses real economic activity. In the experiment, insolvencies were frequent. As a consequence, consumers and producers often refused to fund intermediaries, which lowered the trade volume. Imposing the disclosure of risky investments did not reduce risk-taking and insolvencies. Instead, imposing capital requirements prevented insolvencies from disrupting real economic activity, thus boosting financial intermediation and trade.

Migration may cause, not only a brain drain, but also a ‘civicness’ drain, leading to a poverty trap. Using migration choices of southern Italian high-school students classified as civic if not cheating in a modified die-roll experiment, we uncover a key role of local civicness (average civicness in the class): a civicness drain is observed only at high and low local civicness. We rationalise this pattern with a model in which civic and uncivic types balance hope versus fear of migration outcomes, taking into account economic gains, risk preferences and their beliefs about being considered civic in the place of destination.

Climate engineering—the deliberate large-scale manipulation of the Earth’s climate system—is a set of technologies for reducing climate-change impacts and risks. It is controversial and raises novel governance challenges [T. C. Schelling, Climatic Change, 33, 303–307 (1996); J. Virgoe, Climatic Change, 95, 103–119 (2008)]. We focus on the strategic implications of solar geoengineering. When countries engineer the climate, conflict can arise because different countries might prefer different temperatures. This would result in too much geoengineering: the country with the highest preference for geoengineering cools the planet beyond what is socially optimal at the expense of the others—a theoretical possibility termed “free-driving” [M. L. Weitzman, Scand. J. Econ., 117, 1049–1068 (2015)]. This study is an empirical test of this hypothesis. We carry out an economic laboratory experiment based on a public “good or bad” game. We find compelling evidence of free-driving: global geoengineering exceeds the socially efficient level and leads to welfare losses. We also evaluate the possibility of counteracting the geoengineering efforts of others. Results show that countergeoengineering generates high payoff inequality as well as heavy welfare losses, resulting from both strategic and behavioral factors. Finally, we compare strategic behavior in bilateral and multilateral settings. We find that welfare deteriorates even more under multilateralism when countergeoengineering is a possibility. These results have general implications for governing global good or bad commons. Significance Governing climate change and other global commons is challenging. Climate engineering has recently gained attention as a way to manage climate risks. Solar geoengineering is a technology that allows countries to unilaterally influence the world temperature. Solar geoengineering could trigger conflicting interventions by countries who prefer different temperatures; economic theory suggests that countries wanting a cooler climate impose it on others. Other countries may react through countergeoengineering interventions. We study the governance of solar geoengineering using a laboratory experiment in which participants engage in a public good-or-bad game. Results confirm that too much geoengineering can occur, leading to considerable economic losses and increased inequality. The experiment also highlights unforeseen governance risks associated with such technologies.

Climate change is considered to be one of the most significant and complex challenges facing the world in the twenty-first century. As such, it is essential to increase the knowledge base regarding climate change and how best to address its impacts through efficient policies. This special issue, which is divided into two parts – published in the previous and current issues of Environment and Development Economics – is a selection of papers related to ‘The Economics of Climate Change and Sustainability’, the topic of an international workshop organized by the Economics Department of the University of Bologna in April 2018. The papers in this special issue cover a wide range of climate-change-related topics, including endogenous growth and overlapping generation models; climate-related financing and green bonds; demography; location decisions and technology diffusion; quantitative relationships and experimental approaches. They aim at providing new insights into the economics of climate change and help to identify new directions for future research.

We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an “intertemporal cooperation game” either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems. (JEL C71, C73, E42)

Does monitoring past conduct facilitate intertemporal cooperation? We designed an experiment characterized by strategic uncertainty and multiple equilibria where coordinating on the efficient outcome is a challenge. Participants, interacting anonymously in a group, could pay a cost either to obtain information about their counterparts, or to create a freely available public record of individual conduct. Both monitoring institutions were actively employed. However, groups were unable to attain higher levels of cooperation compared to a treatment without monitoring. Information about past conduct alone thus appears to be ineffective in overcoming coordination challenges.