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2012-05-11 | Peer Reviewed

Behavioral Economics and Environmental Policy

Carlsson, Fredrik and Olof Johansson-Stenman. 2012. “Behavioral Economics and Environmental Policy.” Annual Review of Resource Economics 4: 75-99.
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This article provides an interpretive survey on implications of insights from behavioral economics for environmental policy. In particular, it discusses whether, and if so how, policy implications based on conventional economic theory have to be modified when insights from behavioral economics are considered.

More specifically, it discusses concerns for cooperation, fairness, self-image, social approval, and status. Moreover, it addresses potential crowding-out effects, context-dependent and incoherent preferences, risk misperceptions, ambiguity aversion, and regulator bias. We conclude that behavioral economics has a lot to offer environmental economics and that some normative policy recommendations have to be modified. Yet the most fundamental policy recommendations in environmental economics generally prevail and are sometimes even reinforced through behavioral economics insights.