Conference Agenda

Nudges are mostly associated with affecting individual choices for their own long-run interest, i.e. dealing with internalities. Yet, they are increasingly used in order to reduce externalities, such as environmental consequences, which we denote Prosocial nudging. While we are gaining increasing insights into when and how prosocial nudges work, much less attention has been given to the normative aspects of nudging as a policy instrument. We investigate optimal prosocial nudges of two kinds - pure nudges that affects the perceived relative prices, and moral nudges - under a number of different settings in a world where a conventional Pigovian tax can be used to a varying extent. We find that nudges only play a limited role when optimal taxes can be implemented and when the nudges cannot be differentiated. However, in the case when optimal taxes cannot be implemented, or when nudges can better target the (non-atmospheric) externalities, the scope for nudges increases considerably.

How to make consumers reduce their carbon footprint? To answer this question, we run an online shopping experiment which displays two levels of a carbon tax and a three-color label on the carbon content of products (red for the most carbon-intensive products, yellow for the middle ones and green for the lowest ones). We disentangle the substitution effect of the carbon tax from its income effect by maintaining purchasing power. We find that the tax alone significantly reduces the carbon footprint per euro spent but not per basket purchased, which suggests that all reduction is driven by the revenue effect. The label alone makes consumers buy fewer red products and more green products, although without reducing significantly their carbon footprint. We do find some substitution effect only when the tax is high enough and combined with the label. We also estimate demand elasticity with and without the label and perform a welfare analysis.

While behavioral non-price interventions (“nudges”) have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes, while allowing for normative ambiguity about how nudges map into utility. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of non-price and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behavior in all three markets, they are not necessarily the most efficient policy. When nudges are debiasing, they are more efficient in the market for cigarettes, while taxes are more efficient in the vaccine and energy market. Interestingly, these conclusions also often hold when nudges are deceptive rather than debiasing. We identify two key factors that govern the difference in results across markets: i) an elasticity-weighted standard deviation of the behavioral bias, and ii) the magnitude of the average externality. Nudges dominate taxes whenever i) exceeds ii). Finally, we consider cases in which nudges cause direct psychic costs or benefits to consumers.