Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences

Abstract

Established environmental policy theory is based on the assumption of homo economicus. This means that people are seen as fully rational and acting in a self-regarding manner. In line with this, economics emphasizes efficient policy solutions and the associated advantages of price incentives. Behavioral economics offers alternative, more realistic views on individual behavior. In this paper we investigate opportunities to integrate bounded rationality and other-regarding preferences into environmental policy theory to arrive at recommendations for more effective policies. For this purpose, we will address decisions made under risk and uncertainty, intertemporal choice, decision heuristics, other-regarding preferences, heterogeneity, evolutionary selection of behaviors, and the role of happiness. Three aspects of environmental policy are considered in detail, namely sustainable consumption, environmental valuation and policy design. We pay special attention to the role of non-pecuniary, informative instruments and illustrate the implications for climate policy.

Conditional cooperation and confusion in public-goods experiments

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Innovative Behavioral Approaches to Analyze the Incentives of Environmental Instruments

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Prospect Theory, Mitigation and Adaptation to Climate Change

“…How do various actors respond to the effects of climate change and the incentives set by climate policies? For climate policy recommendations, most economists have used standard economic approaches based on the assumptions of the homo oeconomicus and rational decision making -although many scholars have argued that models from behavioural economics provide a more realistic description of observed behaviour in environmental issues (van den Bergh et al 2000;Brekke and Johansson-Stenman 2008;Gowdy 2008;Gsottbauer and van den Bergh 2010;Shogren et al 2010;Shogren and Taylor 2008;Venkatachalam 2008). This paper joins the debate on behavioural economics in climate change mitigation and adaptation.…”