Two Cheers and a Qualm for Behavioral Environmental Economics

Abstract

Behavioral economics can gain more in-roads into environmental economics if we better understand why exchange institutions fail, more effectively reduce health risks and environmental conflicts, encourage more coordination and cooperation, design better incentive systems, more accurately estimate economic measures of value, and promote more protection at less cost. Behavioral economics deserves two cheers for advancing ideas of context-dependence and social preferences, which we illustrate with two examples of recent research.

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.…”

“…Other sources discuss the implications of behavioural economics on environmental policy more generally (van den Bergh et al 2000;Gowdy 2008;Shogren et al 2010;Shogren and Taylor 2008;Venkatachalam 2008). Complementary to these works, this paper systematically identifies connections and empirical applications of PT on climate response measures.…”

Recent Trends in Behavioral Environmental Economics

“…These research areas are taken up by later survey articles on the topics of behavioral economics (see e.g. Mullainathan and Thaler 2000;Venkatachalam 2008;Pesendorfer 2006;Shogren et al 2010;Gsottbauer and van den Bergh 2011) and are still subject of theoretical and empirical research aiming either at providing general applicable descriptions of human behavior or at explaining individuals' actions in specific contexts. As Carlsson and Johansson-Stenman (2012) point out the main policy concerns in the environmental context are about externalities and not about bounded rationality or willpower.…”

“…The importance of behavioral economics for environmental economics is taken up by survey articles with different focus areas (see e.g. Brekke and Johansson-Stenman 2008;Shogren and Taylor 2008;Venkatachalam 2008;Shogren et al 2010;Carlsson and Johansson-Stenman 2012;Croson and Treich 2014).…”

“…Arrow 1986). However, Shogren et al (2010) argue that the standard theory can still provide as useful upper benchmark acting as comparison for revealed behavior. Brekke and Johansson-Stenman (2008) as well as Carlsson and Johansson-Stenman (2012) stress the social context as an additional factor-besides individuals' non material motivation and their unbounded rationality-which differentiates behavioral economics from standard theory.…”