Lecture 3: Policy instruments 2

Question 1

Why are social norms, labelling and nudges applied?

Answer 1

To overcome the ‘market imperfections’ of ignorance (irrational behaviour) and uncertainty (imperfect information)

Question 2

What do social norms do?

Answer 2

They influence people’s preferences, mostly outside economics

Question 3

What do nudges (duwtje) do?

Answer 3

• Do not change the choice set
• Change the default option (fe: carbon compensation for flights)
• Provide anchor points (fe: fly in the toilet)
• Improve information (fe: energy bill)

Question 4

What does labelling do? (advantages)

Answer 4

• Informing consumer choice
• Promote economic efficiency ( need for regulation is kept to minimum)
• Stimulate market development (signals guides to greener markets)
• Encourages continuous improvement (long term commitment to companies)
• Encourages monitoring

Question 5

What does labelling do? (disadvantages)

Answer 5

• Mislead
• Unfair competition (especially when the claim is false)
• Feasibility (not relevant/ usefull for all products/markets)
• Methodologies (different testing/certification methods).

Question 6

What do labels, social norms and nudges aim to achieve in terms of the demand and supply curve?

Answer 6

They aim at shifting the demand and marginal social cost curve. Leading to a more socially desirable allocation of resources and a reduction in negative externalities.

Question 7

What do labels do to the demand and supply curve?

Answer 7

They may change the input of production, in general this leads to that the MSC will go down.

Question 8

Which 4 types of subsidies are there?

Answer 8

• R&D subsidy
• Pollution reduction subsidy
• Consumer subsidy
• Tax exemptions (special tax treatments for specific products/sectors)