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Payments or persuasion: norms, subsidies, and efficiency in a common pool resource experiment

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Abstract

We study the comparative effectiveness of three policy interventions in a lab experiment that models common pool resources. The interventions we examine are a Pigouvian subsidy, information provision, and an appeal to social norms. The subsidy successfully reduces over-extraction to close to the efficient level on average, but even groups that were not over-extracting are induced to extract less. Because the social optimum is interior, over-compliance reduces efficiency. Moreover, when the subsidy is removed, extraction reaches its least efficient level. Both information provision and normative appeals increase efficiency by reducing over-extraction without exacerbating over-compliance, although the reduction in extraction is much less than that seen with the subsidy. Some of the effect of normative appeals persists even after messages stop being sent. Net of estimates of the marginal cost of raising public funds to pay for a subsidy, the efficiency achieved by the two nonpecuniary treatments is comparable to that achieved by the Pigouvian subsidy.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2013-02.

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Length: 21 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:wil:wileco:2013-02

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Keywords: laboratory experiment; Pigouvian tax; Pigouvian subsidy; common pool resource; information provision; normative messaging;

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  1. François Cochard & Marc Willinger & Anastasios Xepapadeas, 2005. "Efficiency of Nonpoint Source Pollution Instruments: An Experimental Study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 30(4), pages 393-422, 04.
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