Lecture 11 (public policy) Flashcards
Nudges are often considered to be “cheap” and
“easy” to implement. But are they really? discuss
On one hand
“Monetary incentives in these settings can generate large increases in desirable behavior, but
are sometimes too expensive to generate a favorable ratio of impact to cost.
Nudges, by contrast, can succeed because they account for individuals’ intuitions, emotions,
and automatic decision-making processes. These processes can be triggered or enlisted with
simple cues and subtle changes to the choice environment, so nudges can be effective yet
cheap, generating high impact per dollar spent.” (Shah, Mullainathan, & Shafir, 2012).
“Furthermore cost of implementation can be cheap for a small group of nudges, such as changing the default option.
On the other hand
But most nudges (such as feedback or reminders) are context dependent and thus require a significant amount of research, knowledge about the ones being nudged and iterative testing to be
effective. Nudges often also have higher variable costs – a tax is set and then collected,” (Carlson et al. 2021).
Comparing nudges to taxes: Can we target externalities/
internalities? Carlsson et al. 2021
Using nudges when taxes cannot target externalities perfectly
* Driving in the city might have different externalities than driving in the country-side
- A flat fuel tax does not distinguish between these differences, meaning nudges (like congestion pricing or eco-driving incentives) could be better tailored.
* Can we tax school children on food waste?
- While taxes are effective for businesses generating waste, taxing schoolchildren for food waste would be ethically and practically challenging. Instead of taxing, a nudge (e.g., smaller default portion sizes, awareness campaigns, or feedback on waste) could reduce waste without financial penalties
* Can we tax airline captains for flying more fuel efficient?
- Instead of taxing captains directly, airlines could use nudges:
Feedback on fuel efficiency (e.g., showing pilots fuel-saving comparisons with peers).
Goal-setting incentives (e.g., setting targets for optimal fuel use).
Behavioral interventions (e.g., making fuel-efficient routes the default option).
These nudges can be more effective than taxes if pilots respond to social comparison or intrinsic motivation.
Using nudges when taxes cannot target internalities perfectly
* What if consumers underestimate future electricity costs when buying a new electric
appliance?
* Second-best optimal tax would be too high for those without cost misperceptions
and too low for those with high cost misperceptions.
* An attention nudge could be the better choice.
Carbon taxes need green nudges – Gravert and Shreedhar
2022-2024
a) outline the context, objective, hypothesis and design of the paper
b) given the figure x describe the results
c) discuss the problem with crowding out for governments policy.
Quesion a)
Context: For effective climate policy, we need both classic and
behavioural policies. Green nudges facilitate the
effectiveness of a carbon tax by increasing the salience
of the tax, harnessing pro-climate concerns, extending
the reach of a tax by targeting behaviours directly and,
importantly, increasing public acceptance of carbon
taxes.
objective: Identify the behavioral effects associated
with the introduction of a salient carbon tax
in relation to its price effect.
Hypothesis: The willingness-to- pay for a high-carbon product is higher when a carbon tax is introduced, compared to an import tax or a neutral price change.
Experimental Design:
The experiment is a large-scale online RCT with a between-subject design with three treatments. It is an incentive-compatible choice experiment in an online shopping environment, where each respondent makes 4 binary choices x 5
product types. We estimate the effects of carbon taxation compared to an import tax or a neutral price
increase on the high-carbon product choice.
Treatments
We randomly assigned participants to three treatments corresponding to three price increases: a carbon tax, an import tax, or a neutral price change –> between subject
variation.
Price levels
Each subject make multiple incentivized choices at four different price levels:
0-20-40-60% difference –> within subject variation.
Question b)
In figure 27 we notice that following a higher tax the amount of high-carbon products chosen decrease. That is a good sign, showing that both the import and carbon tax are working. Reducing the information uncertainty and making products’ environmental impact more salient
can reduce alone the demand for high-carbon products. (Fosgaard et al., 2024) plus a social effect, which discourage people from the choice. But we also see that the import tax reduce the choices the most, which could come as a surprise if we think a salient carbon tax would be most affective. Why is this? For individuals with high climate concern, the carbon tax strongly reduces the demand for
high-carbon products when the prices are identical across alternatives (discouragement
effect), but their motivation is fully crowded out once a tax is introduced (moral licensing).
c)
At the medium and high tax level, the price effect can be strong enough to overcome the effects
of the crowding out. However, politically challenging. A mix with other policy instruments might be
problematic.
The higher the share of climate-concerned individuals in a country, the worse the crowding-out.
Therefore, policy strategies should be dynamically adjusted over time to reflect the evolving state
of the population’s climate concern. Context is king.
The emphasis on “the benefit of paying a carbon tax” could exacerbate the moral licensing. Carbon tax acceptance should be linked to fairness and efficiency, not motivated by relieving guilt
How should I understand high concerned climate individuals felling their motivation crowded out, when governments introduce green tax policies, which are salient.a
Understanding the Crowding Out Effect (Moral Licensing in Carbon Taxes)
The crowding out effect in this context refers to how introducing a tax can reduce or eliminate intrinsic motivation to choose low-carbon products. This is related to moral licensing, where people feel that their ethical responsibility is “fulfilled” by an external measure, reducing their personal commitment to climate-friendly choices.
Breaking It Down:
Without a Carbon Tax (Intrinsic Motivation Active)
People with high climate concern choose low-carbon products because they care about the environment.
When prices are the same, they strongly prefer low-carbon alternatives over high-carbon ones (this is the discouragement effect—they avoid high-carbon options).
With a Carbon Tax (Intrinsic Motivation Crowded Out)
The introduction of a tax shifts the decision-making process.
Instead of making a choice based on personal climate concern, individuals now see the tax as the reason to choose a low-carbon product.
This external intervention “crowds out” their intrinsic motivation—they may feel that the tax is handling the problem for them.
Moral licensing occurs:
They might think, “Since I’m already paying a tax, I’ve done my part—I don’t need to actively avoid high-carbon products anymore.”
As a result, they might actually buy more high-carbon products, feeling less personal responsibility for reducing emissions.
