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The behavioral effect of Pigovian regulation: Evidence from a field experiment

Lookup NU author(s): Dr Luca Panzone

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).


Abstract

© 2017 Elsevier Inc. Pigovian regulation provides monetary penalties/rewards to incentivize prosocial behavior, and may thereby trigger behavioral effects beyond a more standard response associated with a change in relative prices. This paper quantifies the magnitude of these behavioral effects using data from an experiment on real product choices together with a structural model of consumer behavior. First, we show that information about external effects (products' embodied carbon emissions) triggers voluntary substitution towards cleaner alternatives, and we estimate that this effect is equivalent to a change in relative prices of GBP30.69-165.15/tCO2. Second, comparing a Pigovian intervention (GBP19/tCO2) with a neutrally-framed price change of the same magnitude, we find a negative behavioral effect associated with regulation. Compensating this bias would require increasing the Pigovian price signal by up to 48.06/tCO2. Finally, based on a cross-product comparison, we show that the magnitude of behavioral effects declines with substitutability between clean and dirty product alternatives, a measure of effort to reduce emissions.


Publication metadata

Author(s): Lanz B, Wurlod J-D, Panzone L, Swanson T

Publication type: Article

Publication status: Published

Journal: Journal of Environmental Economics and Management

Year: 2018

Volume: 87

Pages: 190-205

Print publication date: 01/01/2018

Online publication date: 28/06/2017

Acceptance date: 18/05/2016

Date deposited: 27/01/2018

ISSN (print): 0095-0696

ISSN (electronic): 1096-0449

Publisher: Academic Press Inc.

URL: https://doi.org/10.1016/j.jeem.2017.06.005

DOI: 10.1016/j.jeem.2017.06.005


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