IDEAS home Printed from https://ideas.repec.org/a/oup/ajagec/v97y2015i5p1385-1399..html
   My bibliography  Save this article

The Hidden Cost of Regulation: Emotional Responses to Command and Control

Author

Listed:
  • David R. Just
  • Andrew S. Hanks

Abstract

In economic models of behavior, consumers are assumed to value the goods and services they purchase based on stable preferences over externally identifiable attributes such as quality. These models predict that consumers will respond to changes in price in a way that is independent of the source of the price change. Yet research in the behavioral sciences indicates that consumers that are emotionally attached to a consumption good or other behavior might respond with resistance when policies threaten their consumption or behavior. Moreover, policies that in fact validate some emotional attachments can stir a stronger preference for the good or behavior. Reviewing both survey and experimental data from the literature, we demonstrate how such emotional responses can create hidden costs to policy implementation that could not be detected using standard welfare economic techniques. Building upon Rabin's work on fairness in games, we propose a partial equilibrium model of emotional response to policy whereby preferences are endogenous to policy choices. In accordance with evidence both from our own analysis and the field, we propose that confrontational policies (such as a sin tax) increase the marginal utility for a good, and that validating policies (such as a subsidy) also increases the marginal utility for a good. A social planner that ignores potential emotional responses to policy changes may unwittingly induce significant dead weight loss. Using our model, we propose a feasible method to determine if emotional deadweight costs exist, and to place a lower bound on the size of these costs.

Suggested Citation

  • David R. Just & Andrew S. Hanks, 2015. "The Hidden Cost of Regulation: Emotional Responses to Command and Control," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(5), pages 1385-1399.
  • Handle: RePEc:oup:ajagec:v:97:y:2015:i:5:p:1385-1399.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/ajae/aav016
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Clee, Mona A & Wicklund, Robert A, 1980. "Consumer Behavior and Psychological Reactance," Journal of Consumer Research, Oxford University Press, vol. 6(4), pages 389-405, March.
    2. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 285-300, October.
    3. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    4. Carole Uhlaner, 1989. "“Relational goods” and participation: Incorporating sociability into a theory of rational action," Public Choice, Springer, vol. 62(3), pages 253-285, September.
    5. Dani Rodrik, 1987. "Policy Targeting with Endogenous Distortions: Theory of Optimum Subsidy Revisited," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 903-911.
    6. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    7. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    8. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
    9. B. Douglas Bernheim, 2009. "Behavioral Welfare Economics," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 267-319, 04-05.
    10. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 51-104.
    11. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    12. Leonardo Becchetti & Giovanni Trovato & David Andres Londono Bedoya, 2011. "Income, relational goods and happiness," Applied Economics, Taylor & Francis Journals, vol. 43(3), pages 273-290.
    13. Jayson L. Lusk, 2014. "Are you smart enough to know what to eat? A critique of behavioural economics as justification for regulation," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 41(3), pages 355-373.
    14. Lindon J. Robison & Robert J. Myers & Marcelo E. Siles, 2002. "Social Capital and the Terms of Trade for Farmland," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(1), pages 44-58.
    15. Gregory M. Perry & Lindon J. Robison, 2001. "Evaluating the Influence of Personal Relationships on Land Sale Prices: A Case Study in Oregon," Land Economics, University of Wisconsin Press, vol. 77(3), pages 385-398.
    16. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jakina Debnam, 2017. "Selection Effects and Heterogeneous Demand Responses to the Berkeley Soda Tax Vote," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(5), pages 1172-1187.
    2. Sunjin Ahn & Jayson L. Lusk, 2021. "Non‐Pecuniary Effects of Sugar‐Sweetened Beverage Policies," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 53-69, January.
    3. Stephan Marette & Jayson L. Lusk & F. Bailey Norwood, 2016. "Choosing for others," Applied Economics, Taylor & Francis Journals, vol. 48(22), pages 2093-2111, May.
    4. Wilson, Lacey & Lusk, Jayson L., 2020. "Consumer willingness to pay for redundant food labels," Food Policy, Elsevier, vol. 97(C).
    5. Doble, Brett & Ang Jia Ler, Felicia & Finkelstein, Eric A., 2020. "The effect of implicit and explicit taxes on the purchasing of ‘high-in-calorie’ products: A randomized controlled trial," Economics & Human Biology, Elsevier, vol. 37(C).
    6. Just, David R. & Gabrielyan, Gnel, 2018. "Influencing the food choices of SNAP consumers: Lessons from economics, psychology and marketing," Food Policy, Elsevier, vol. 79(C), pages 309-317.
    7. Rebecca L. C. Taylor, 2020. "A Mixed Bag: The Hidden Time Costs of Regulating Consumer Behavior," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(2), pages 345-378.
    8. Vincenzina Caputo & Jayson L. Lusk, 2020. "What agricultural and food policies do U.S. consumers prefer? A best–worst scaling approach," Agricultural Economics, International Association of Agricultural Economists, vol. 51(1), pages 75-93, January.
    9. Annika J. Thies & Matthias Staudigel & Daniela Weible, 2023. "A segmentation of fresh meat shoppers based on revealed preferences," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 1075-1099, October.
    10. Maurizio Canavari & Andreas C. Drichoutis & Jayson L. Lusk & Rodolfo M. Nayga, Jr., 2018. "How to run an experimental auction: A review of recent advances," Working Papers 2018-5, Agricultural University of Athens, Department Of Agricultural Economics.
    11. Miller, Gabrielle F. & Gupta, Sonam & Kropp, Jaclyn D. & Grogan, Kelly A. & Mathews, Anne, 2016. "The effects of pre-ordering and behavioral nudges on National School Lunch Program participants’ food item selection," Journal of Economic Psychology, Elsevier, vol. 55(C), pages 4-16.
    12. Nathalie Mathieu-Bolh, 2021. "Hand-to-mouth Consumption and Calorie Consciousness: Consequences for Junk-food Taxation," Public Finance Review, , vol. 49(2), pages 167-220, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James Alm & Carolyn J. Bourdeaux, 2013. "Applying Behavioral Economics to the Public Sector," Hacienda Pública Española / Review of Public Economics, IEF, vol. 206(3), pages 91-134, September.
    2. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    3. Miklós Antal & Ardjan Gazheli & Jeroen C.J.M. van den Bergh, 2012. "Behavioural Foundations of Sustainability Transitions. WWWforEurope Working Paper No. 3," WIFO Studies, WIFO, number 46424, December.
    4. Jacobs Martin, 2016. "Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences," Review of Economics, De Gruyter, vol. 67(2), pages 121-183, August.
    5. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    6. Elisabeth Gsottbauer & Jeroen Bergh, 2011. "Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 263-304, June.
    7. Keith M. Marzilli Ericson, 2014. "On the Interaction of Memory and Procrastination: Implications for Reminders," NBER Working Papers 20381, National Bureau of Economic Research, Inc.
    8. Sugden, Robert, 2021. "Hume's experimental psychology and the idea of erroneous preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 836-848.
    9. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    10. Alessandro Lizzeri & Leeat Yariv, 2017. "Collective Self-Control," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 213-244, August.
    11. Rawley Heimer & Zwetelina Iliewa & Alex Imax & Martin Weber, 2021. "Dynamic Inconsistency in Risky Choice: Evidence from the Lab and Field," ECONtribute Discussion Papers Series 094, University of Bonn and University of Cologne, Germany.
    12. Cameron Hepburn & Stephen Duncan & Antonis Papachristodoulou, 2010. "Behavioural Economics, Hyperbolic Discounting and Environmental Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 46(2), pages 189-206, June.
    13. Eduard Marinov, 2017. "The 2017 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 117-159.
    14. Floris Heukelom, 2007. "Who are the Behavioral Economists and what do they say?," Tinbergen Institute Discussion Papers 07-020/1, Tinbergen Institute.
    15. Christine Jolls, 2007. "Behavioral Law and Economics," NBER Working Papers 12879, National Bureau of Economic Research, Inc.
    16. Elliott, Catherine S. & Hayward, Donald M., 1998. "The expanding definition of framing and its particular impact on economic experimentation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 27(2), pages 229-243.
    17. Eileen Tipoe & Abi Adams & Ian Crawford, 2022. "Revealed preference analysis and bounded rationality [Consume now or later? Time inconsistency, collective choice and revealed preference]," Oxford Economic Papers, Oxford University Press, vol. 74(2), pages 313-332.
    18. Antonides, Gerrit & Kroft, Maaike, 2005. "Fairness judgments in household decision making," Journal of Economic Psychology, Elsevier, vol. 26(6), pages 902-913, December.
    19. Ghosal, Sayantan & Dalton, Patricio, 2013. "Characterizing Behavioral Decisions with Choice Data," CAGE Online Working Paper Series 107, Competitive Advantage in the Global Economy (CAGE).
    20. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:ajagec:v:97:y:2015:i:5:p:1385-1399.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.