Behavioral environmental economics

Phil Miller at Market Power:

Should the government somehow subsidize environmentally-friendly products such as organically grown tomatoes or free-range chicken?  Doing so, some proponents would say, would help improve environmental conditions and could possibly make people more healthy.  What could possibly go wrong?

As any economist will tell you, there are always trade-offs associated with any subsidy.  When a particular product is subsidized, this drives people to buy a product who otherwise would have purchased something else and/or who would have saved their money.  So one obvious trade-off is a decrease in current and/or future consumption of some other product.  

Another obvious trade-off is that subsidies must come from taxes, which discourage economic activity, or from the printing of money, which drives higher rates of inflation.

But according to a paper by Nina Mazar and Chen-Bo Xhong in the current issue of a top 10 psychology journal, Pyschological Science, one more subtle trade-off of green subsidies may be in the form of increased unethical behavior on the part of people who buy green products (here is a link to a currently ungated version).

Consumer choices not only reflect price and quality preferences but also social and moral values as witnessed in the remarkable growth of the global market for organic and environmentally friendly products. Building on recent research on behavioral priming and moral regulation, we find that mere exposure to green products and the purchase of them lead to markedly different behavioral consequences. In line with the halo associated with green consumerism, people act more altruistically after mere exposure to green than conventional products. However, people act less altruistically and are more likely to cheat and steal after purchasing green products as opposed to conventional products. Together, the studies show that consumption is more tightly connected to our social and ethical behaviors in directions and domains other than previously thought.

Here is a Guardian article by Kate Connolly that discusses this paper.  Ms. Connolly quotes psychologist Dieter Frey as saying that when someone obtains some kind of credential, like environmentalist cred that would come with buying green products, "you tend to allow yourself to stray elsewhere." 

So, if Mazar and Xhong are correct, a trade-off with environmental subsidies may be a less civil society, at least at the margin.  Like I said:  there are always tradeoffs.

via marketpower.typepad.com