New Perspectives for Environmental Policies Through Behavioral Economics by Frank Beckenbach & Walter Kahlenborn

Author:Frank Beckenbach & Walter Kahlenborn
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

7.5.2 Consumers and Third Parties

In the environmental context, externalities are pervasive; they may well be the principal motivation for a green default rule. Choosers may also face a collective action problem. Asked individually, they might rationally select gray energy, but they might prefer green energy if everyone else was doing so as well. In some cases, externalities or collective action problems will justify a firm mandate rather than a mere default rule; indeed, there may be a standard market failure that calls for a corrective tax or some kind of regulatory intervention. We are assuming here, however, that for one reason or another (perhaps including political constraints), mandates are off the tables, and the question is the appropriate default rule. If choice architects are deciding among defaults in the presence of externalities and collective action problems, they must investigate the full set of costs and benefits, not only the welfare of choosers.119 They must ask: If a default rule turned out to stick, what would be the costs and what would be the benefits?120

Consider the question whether the default rule should favor one-sided printing or two. We would need to know something about the relevant population to know which of these would be best from the individual standpoint. In the abstract, the answer is not obvious. Perhaps choosers are generally indifferent as between one-sided and two-sided copies; perhaps they strongly favor one or the other. If choice architects have no idea, they might ask people to choose. But it is easy to imagine situations in which individuals are relatively indifferent and the externalities are decisive. When institutions reduce their use of paper, they save money for themselves, while at the same time reducing the environmental and other costs associated with the production of paper. The best approach would be to quantify those costs. If the relevant costs are significant, they would weigh strongly in favor of a double-sided default even if the majority of choosers would prefer single-sided. And it is true that if the externalities are especially large, a mandate begins to look more attractive and justified on economic and ethical grounds.121

Or return to the case of green energy. Even if most choosers would select gray because it is less expensive, green might be the better default if it would avoid significant externalities. No one doubts that certain energy sources produce far less than others in the way of air pollution and other harms.122 Other things being equal, there is strong reason to select a default rule that reduces such pollution. Suppose that we focus narrowly on greenhouse gas emissions. In recent years, a great deal of work has been done to attempt to estimate the social cost of carbon (“SCC”).123 In 2010, a technical working group in the United States government settled on an SCC with a central value of about $23 (2013 dollars)124; in 2013, the central value was updated to about $36 (mostly to reflect sea-level rise).125 We could easily imagine cases in which the avoidance

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