Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/191496 
Year of Publication: 
2017
Series/Report no.: 
IRENE Working Paper No. 17-01
Publisher: 
University of Neuchâtel, Institute of Economic Research (IRENE), Neuchâtel
Abstract: 
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.
Subjects: 
Externalities
Pigovian regulation
Consumer behavior
Information
Field experiments
Environmental policy
JEL: 
C93
D03
D12
H23
Q58
Document Type: 
Working Paper

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