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Impact of peer comparisons and firm heterogeneity on nonpoint source water pollution: An experimental study

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  • Wu, Shang
  • Palm-Forster, Leah H.
  • Messer, Kent D.

Abstract

Greg Poe was a pioneer in using experimental economics to test theories and potential policies for controlling ambient pollution. His foundational work showed that, in some settings, policies could induce groups to reduce their nonpoint source (NPS) pollution to socially-efficient levels. Poe’s earlier studies assumed firms were homogeneous, which laid the groundwork for subsequent research to investigate the effect of firm heterogeneity on policy outcomes. We build on the research foundation laid by Poe and his colleagues by using an economic experiment to test the effects of four types of firm heterogeneity and three social norm information treatments on the performance of an ambient tax/subsidy policy. Our experimental results show that heterogeneity reduces the effectiveness of the ambient tax/subsidy policy, but that information nudges can improve outcomes even when there is considerable heterogeneity in the policy environment. Participants were also better able to find and retain their dominant strategies when they were provided with information about similar firms, suggesting that individually-targeted information is more effective than information about aggregate group-level decisions.

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  • Wu, Shang & Palm-Forster, Leah H. & Messer, Kent D., 2021. "Impact of peer comparisons and firm heterogeneity on nonpoint source water pollution: An experimental study," Resource and Energy Economics, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:resene:v:63:y:2021:i:c:s092876551830318x
    DOI: 10.1016/j.reseneeco.2019.101142
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    More about this item

    Keywords

    Ambient-based policy; Heterogeneous agents; Information nudges; Laboratory experiment; Nonpoint source pollution;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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