New URI lab experiments with emerging economic markets

Media Contact: Todd McLeish 874-7892

New URI lab experiments with
emerging economic markets

KINGSTON, R.I. — December 30, 2002 — As debate continues over how best to revise the commercial fishing licensing system in Rhode Island, a new experimental economics lab at the University of Rhode Island is playing an important role in testing a new, market-based approach.

The Policy Simulation Lab in URI’s Department of Environmental and Natural Resource Economics is a state-of-the-art facility where an artificial environment can be established to test how new economic markets might work.

“This is a fairly young tool used to look at the decision-making process,” said URI Assistant Professor Christopher Anderson. “We use volunteers to play the role of economic agents and ask them to buy and sell X based on a given value. Those who make better deals are paid more for their participation in the experiment. It’s basic behavioral research to see how and why people make economic decisions.”

Using 26 high-tech workstations, two group decision rooms, and a 125-seat presentation hall with advanced audio-visual aids and in-seat voting capabilities, Anderson said the URI lab is one of less than a dozen facilities in the country that are designed specifically to test economic theories and new policies.

“In the lab you can bring people together to have trading all in one place, where researchers have complete information about buyers’ values and sellers’ costs, and where we can manipulate that information,” explained Anderson.

For example, the state’s current lobster fishing license allows fishermen to set 800 traps, but some fishermen don’t want to use that many and others would like to use more. The state is considering establishing “tradable allowances” whereby fishermen can trade the right to sell some of their 800 traps. Using the URI Policy Simulation Lab, volunteers will play the role of fishermen in an experiment to compare profitability and distribution issues under alternative rules for trading them.

“Those that aren’t using all their traps can be compensated by those that want to fish more,” Anderson said. “In theory, by giving fishermen this trading right, traps are used by those who can use them best and extract the most value from them. And you maximize the total value of the fishery. We want to determine the extent to which the theory is correct under alternative proposals.”

Opened in 2001 in the new Coastal Institute building on URI’s Kingston Campus, the lab has already been used to assess the value of land conservation easements and their impact on municipal property taxes, as well as for a variety of other economic issues. Anderson said that about 20 to 30 experiments per year are conducted in the lab, but most so far have been academic exercises to test social norms and aspects of economic theory.

“We want to use the lab to better understand non-market environmental values,” said Anderson. “For instance, how do people value wildlife habitat, endangered species, scenic views or wildlife viewing opportunities.”

The lab is also being used by URI Professor James Opaluch to simulate the far-reaching implications of governmental policies and decisions on residents, businesses and the environment. The interactive computer technologies in the lab help decision makers understand the consequences of policy choices and get immediate feedback from interested parties.

If local town council members want to design a plan for managing growth or are considering approving a large sub-division, the computer systems in the lab can simulate the environmental, economic and social consequences of the resulting policies and decisions. Electronic maps from the state Geographic Information System can illustrate the resulting landscape, and virtual reality tools can then provide a virtual drive through the development or a virtual fly-over of the area to better visualize how the community will be affected. Stakeholders in the presentation hall can then provide immediate feedback by voting on the plan.

Opaluch said these capabilities would likely be used primarily by local groups and communities, “but it could also be linked to a room full of people in California via the Internet or to individuals spread out all over the world.”

For Information: Christopher Anderson, 874-4587