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Environmental Incentives: Nudge or Tax?

Author

Listed:
  • Benjamin Ouvrard

    (ETA, CNRS and University of Strasbourg)

  • Sandrine Spaeter

    (ETA, CNRS and University of Strasbourg)

Abstract

We consider a model where individuals can voluntarily contribute to improve the quality of the environment. They differ with regard to their confidence in the announcement made by the regulator about the risk of pollution, modelized in a RDEU model, and to their environmental sensitivity. We compare the efficiency of a tax in increasing individual contributions with the advantages of a nudge based on the announcement of the social optimum to each individual. Under some conditions, a nudge performs better than a tax, in particular, because the individual reaction depends directly on sensitivity, while only indirectly with a tax. Moreover, a nudge does not require information about private contributions, contrary to a tax based on the contributions that are not provided compared to the social optimum. Lastly, its implementation is much cheaper. Yet, some drawbacks are discussed and simulations illustrate our results.

Suggested Citation

  • Benjamin Ouvrard & Sandrine Spaeter, 2016. "Environmental Incentives: Nudge or Tax?," Working Papers 2016.15, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2016.15
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    File URL: http://faere.fr/pub/WorkingPapers/Ouvrard_Spaeter_FAERE_WP2016.15.pdf
    File Function: First version, 2016
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    References listed on IDEAS

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    Cited by:

    1. Boun My, Kene & Ouvrard, Benjamin, 2019. "Nudge and tax in an environmental public goods experiment: Does environmental sensitivity matter?," Resource and Energy Economics, Elsevier, vol. 55(C), pages 24-48.
    2. Michels, Marius & Luo, Hao & Weller von Ahlefeld, Paul Johann & Mußhoff, Oliver, 2023. "Compliance with pre-harvest interval rules in apple production—A comparative analysis of green nudges among fruit growers and agricultural students in Germany," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 102(C).

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    More about this item

    Keywords

    incentives; nudge; environmental sensitivity; probability distortion; tax;
    All these keywords.

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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