How Beliefs Influence the Willingness to Contribute to Prevention Expenditure

We study how beliefs affect individuals’ willingness to contribute to prevention expenditure through a two-type, N-person public good game and test several results empirically. We show analytically that pessimistic agents will invest more in prevention expenditure than optimists. We also demonstrate how small differences in beliefs may induce substantial differences in type-related prevention expenditure. The more atomistic agents are, the less they will contribute to the public good. Pessimistic beliefs then lead to a "double deprivation," and we discuss potential issues and remedies. The more optimistic a society is, the lower will be its total green expenditure. We then use a large international survey to study how beliefs and additional controls determine prevention expenditure. We rely on several proxies for beliefs and the willingness to contribute to prevention expenditure, which we combine through principal component analysis. In addition, we investigate the role of environmental education for the relationship between beliefs and the willingness to contribute. Because of potential endogeneity bias due to unobserved variables that are likely to affect both beliefs and the willingness to contribute, we follow the theoretical analysis and resort to a recursive bivariate model. Our main findings are very much in line with the theoretical predictions. We find, across all specifications, that more optimistic beliefs lead to a lower willingness to contribute. Environmental education affects the willingness to contribute only indirectly through its impact on beliefs.