Prices vs. Quantities from a Citizen’s Perspective

We propose a theory of public appraisal and employ it to explain divergent public opinion on similar economic policy instruments. In a survey-based policy design experiment with 13,665 respondents from seven European countries, we study how policy perceptions and support rates differ across carbon pricing designed as “carbon taxation” and “emissions trading”. While there is considerable cross-country variation in the appraisal of both instruments, the emissions trading design reduces opposition in all countries except Germany. We find that the treatment effects of instrument design on policy perceptions are substantial: carbon taxes are consistently more often perceived as increasing the state budget, harming the economy, and increasing costs of living and production. Using causal mediation analysis, we ascertain that lower opposition to emissions trading is partly due to its perception as less costly. Overall, our results suggest that the public consistently perceives taxes as a “tougher” measure, and that emissions trading appeals more to European constituencies not already supportive of climate policy.