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Game theory in the popular press.

Industry, Regulators Learn to Play the Game

Pollution Engineering - Editor's Notes

When does it make sense to cooperate with potential adversaries?

John Krukowski
1 July 1997
text is a cache of http://www.pollutionengineering.com/archives/1997/pol0701.97/07edit0.htm

  Economists and animal behaviorists sometimes use "game theory" computer simulations to study the complex behavior of a population's members.

  A well-known program called "Prisoner's Dilemma" helps make sense of the interactions of, say, microorganisms competing for survival on a Petri dish, or corporations listed on the New York Stock Exchange: When does it make sense to cooperate with potential adversaries? Or to stick it to them? And, how do entities make these decisions, consciously or not, when they can never be totally sure of what the other guy is going to do?

  At the start of a quintessential Prisoner's Dilemma simulation, each of two competing members of a cyber-community usually will try to gain the upper hand at the other's expense. But after time -- as if the adversaries have grown weary of conflict -- the parties often will adopt a strategy of cautious, mutual cooperation. It's as if the adversaries learn that giving in to each other a little will allow both to prosper to some degree. The payoff for any one "side" isn't as great as the rewards of a unilateral victory, but neither does it suffer the costs of a long war of attrition.

  It's not clear whether game theory simulations like this are now in common use at EPA headquarters. But some of the inhabitants of the pollution control community appear to have begun to view mutual cooperation as the smartest solution to many potential conflicts.

  An instance of this concerns the company that is the focal point of our cover article, Rahr Malting. The major food processor faced a not-uncommon dilemma when it made plans to expand production at its Minnesota operation. The resulting increase in effluent would have exceeded mandated maximum daily loads into the nearby Minnesota River.

  Regulators, certainly the adversarial group in a hypothetical computer simulation, could have turned up the heat and required Rahr to install costly, additional treatment equipment or to pay higher discharge fees.

  Instead, the Minnesota Pollution Control Agency (MPCA) and Rahr Malting opted for mutual cooperation. The state is allowing the company to proceed with its expansion, even though Rahr's effluent will contribute 150 lbs/day of five-day carbonaceous biochemical oxygen demand (CBOD5) loadings to the river. Rahr Malting, for its part, will work with landowners upstream to reduce non-point CBOD5 loadings, such as soil erosion, by a better-than-even ratio.

  Everyone had to give a little -- Rahr committed $250,000 for watershed improvement, while the MPCA agreed to experiment with a brave new approach to pollution control known as "effluent trading." But the mutual benefits are sure to be great as a major local employer cost-effectively increases production, and a local waterway is made a little cleaner.

  Also profiled this month is a new Resource Conservation and Recovery Act (RCRA)program that allows a company to undertake a RCRAcorrective action without needing EPA approval of every step. In effect, the government is saying it trusts members of the regulated community to assume responsibility for stabilizing health and environmental impacts without a lot of time-consuming oversight.

  Both articles demonstrate that the environmental community today is learning what some computers model have shown for years -- often the most effective way to advance seemingly competitive agendas is through cooperation.


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