Regulating the Environmental Consequences of Preferences for Social Status Within an Evolutionary Framework

Continuously increasing consumption of material goods drives current resource and environmental crises, including climate change and loss of biodiversity. Technology offers solutions the development and the adoption of which though is not at the speed required to address the crises. Therefore, demand side responses have to be triggered and the most common economic suggestion is to use price signals. Increases in fuel prices during the last decade in both Europe and North America though, have not yielded the expected reductions in the fuel economy. Furthermore, ambitious increases in fuel prices have resulted in considerable opposition, especially by low-income people. The present paper offers an explanation for the reduced effectiveness of environmental taxation by focusing on relatively high-income individuals whose consumption of highly polluting material goods is driven by motivations to improve their social status. Furthermore, the paper shows that complementing the tax with information provision aiming at moderating status seeking overconsumption improves social welfare. Convincing people, through information campaigns and/or advertisement that consuming highly polluting material goods does not improve their social status could have a substantial effect which perfectly complements taxation, improving actually its effectiveness.