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Judging Nudging: Toward an Understanding of the Welfare Effects of Nudges Versus Taxes

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  • John List
  • Matthias Rodemeier
  • Sutanuka Roy
  • Gregory Sun

Abstract

While non-price interventions ("nudges") have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of non-price and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behaviour in all three markets, they are not necessarily the most efficient policy. We find that nudges are more efficient in the market for cigarettes, while taxes are more efficient in the energy market. For influenza vaccinations, nudges may offer similar welfare gains to optimal vaccine subsidies. Importantly, two key factors govern the difference in results across markets: i) the standard deviation of the behavioral bias, and ii) the magnitude of the average externality. Nudges dominate taxes whenever i) exceeds ii).

Suggested Citation

  • John List & Matthias Rodemeier & Sutanuka Roy & Gregory Sun, 2022. "Judging Nudging: Toward an Understanding of the Welfare Effects of Nudges Versus Taxes," Framed Field Experiments 00765, The Field Experiments Website.
  • Handle: RePEc:feb:framed:00765
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