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Pricing externalities and moral behaviour

Author

Listed:
  • Axel Ockenfels

    (University of Cologne, Center for Social and Economic Behavior (C-SEB) and Department of Economics)

  • Peter Werner

    (Maastricht University, School of Business and Economics, Department of Microeconomics and Public Economics)

  • Ottmar Edenhofer

    (Mercator Research Institute on Global Commons and Climate Change (MCC), Potsdam Institute for Climate Impact Research (PIK), and Technical University Berlin (TU Berlin))

Abstract

To measure how moral behaviour interacts with pricing regimes, we conduct highly controlled experiments in which trading creates pollution. We compare indirect pricing (here, a cap and trade mechanism) and direct pricing (a tax) in an otherwise equivalent setting in which ‘producers’ are incentivized to emit CO2. ‘Judges’ decide on central trading parameters that may restrict socially harmful activities. Profit maximization predicts the same producer behaviour in either setting in the absence of regulation, yet we find a substantial share of producers refraining from emitting CO2 at all. Although judges restrict behaviour in similar ways across mechanisms, direct pricing more effectively accommodates moral behaviour than the quantity policy.

Suggested Citation

  • Axel Ockenfels & Peter Werner & Ottmar Edenhofer, 2020. "Pricing externalities and moral behaviour," Nature Sustainability, Nature, vol. 3(10), pages 872-877, October.
    • Handle: RePEc:nat:natsus:v:3:y:2020:i:10:d:10.1038_s41893-020-0554-1
    DOI: 10.1038/s41893-020-0554-1
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    Citations

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    Cited by:

    1. Stehr, Frauke & Werner, Peter, 2021. "Making Up for Harming Others — An Experiment on Voluntary Compensation Behavior," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242396, Verein für Socialpolitik / German Economic Association.
    2. Riehm, Tobias & Fugger, Nicolas & Gillen, Philippe & Gretschko, Vitali & Werner, Peter, 2022. "Social norms, sanctions, and conditional entry in markets with externalities: Evidence from an artefactual field experiment," Journal of Public Economics, Elsevier, vol. 212(C).
    3. Ottmar Edenhofer & Max Franks & Matthias Kalkuhl, 2021. "Pigou in the 21st Century: a tribute on the occasion of the 100th anniversary of the publication of The Economics of Welfare," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(5), pages 1090-1121, October.
    4. Christoph Huber & Anna Dreber & Jürgen Huber & Magnus Johannesson & Michael Kirchler & Utz Weitzel & Miguel Abellán & Xeniya Adayeva & Fehime Ceren Ay & Kai Barron & Zachariah Berry & Werner Bönte , 2023. "Competition and moral behavior: A meta-analysis of forty-five crowd-sourced experimental designs," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 120(23), pages 2215572120-, June.
    5. Bartling, Björn & Özdemir, Yagiz, 2023. "The limits to moral erosion in markets: Social norms and the replacement excuse," Games and Economic Behavior, Elsevier, vol. 138(C), pages 143-160.
    6. Björn Bartling & Vanessa Valero & Roberto A. Weber & Yao Lan, 2020. "Public Discourse and Socially Responsible Market Behavior," CESifo Working Paper Series 8531, CESifo.
    7. Bartling, Björn & Fehr, Ernst & Özdemir, Yagiz, 2023. "Does Market Interaction Erode Moral Values?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 105(1), pages 226-235.
    8. Grebel, Thomas & Islam, Rohidul, 2022. "Endogenous cap reduction in Emission Trading Systems," Ilmenau Economics Discussion Papers 169, Ilmenau University of Technology, Institute of Economics.
    9. Greiff, Matthias & Rusch, Hannes, 2022. "Sharing responsibility for the good," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 101(C).

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