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Efficiency criteria for nudges and norms

Author

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  • W. Kip Viscusi

    (Vanderbilt Law School)

Abstract

This article outlines benefit-cost criteria for nudges and behavioral norms for a wide range of policy situations. The principal benefits from well-designed policies usually derive from promoting efficient behaviors, but counterpart costs may also be generated by discouraging efficient behaviors. The distinguishing economic characteristic of nudges is not only that they are less intrusive interventions that nudge rather than mandate behavior, but that they exploit additional policy dimensions other than financial incentives. Policies utilizing financial incentives have a cost advantage over nudges to the extent that they involve transfers, which are not net social costs. Failure to understand this cost distinction has led to overestimation of the cost-effectiveness of nudges compared to financial incentives. Financial incentives are flexible and can be varied continuously on a single dimension. Nudges usually involve indivisible components, but their stringency sometimes can be varied by utilizing nudges on multiple policy dimensions.

Suggested Citation

  • W. Kip Viscusi, 2022. "Efficiency criteria for nudges and norms," Public Choice, Springer, vol. 191(3), pages 465-482, June.
    • Handle: RePEc:kap:pubcho:v:191:y:2022:i:3:d:10.1007_s11127-019-00712-5
    DOI: 10.1007/s11127-019-00712-5
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    More about this item

    Keywords

    Nudges; Norms; Behavioral economics; Benefit-cost analysis; Efficiency; Cost-effectiveness;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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