Impact of externalities on fishers' risk-taking decisions: Evidence from an experimental study at Lake Victoria, Uganda

Abstract

Risk decisions by fishers are often accompanied by certain or uncertain externalities. However, the consideration of these externalities in their risk decisions has received little attention so far. In this study, we investigate how resource users incorporate certain or uncertain externalities into their risk decisions. We do this by conducting a lab-in-the-field experiment with Ugandan fishers at Lake Victoria. The fishers make a financially relevant risk decision with different levels of certainty about how a risky decision affects the income of a second fisher. In the treatments, a risky decision has either no impact, a possible positive or negative impact, a possible negative or no impact, or a certain negative impact on the other fisher's income. Our results show that fishers take significantly less risk when risky decisions have a certain negative effect on the income of another fisher than when they have no effect and the other fisher receives a fixed income. They also show that risk-taking only increases significantly compared to individual risk decisions when fishers know the other fisher's income but their risk decision has no impact on it.