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Pricing externalities and moral behaviour

Authors

Ockenfels,  Axel
External Organizations;

Werner,  Peter
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/persons/resource/Ottmar.Edenhofer

Edenhofer,  Ottmar
Potsdam Institute for Climate Impact Research;

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Citation

Ockenfels, A., Werner, P., Edenhofer, O. (2020): Pricing externalities and moral behaviour. - Nature Sustainability, 3, 10, 872-877.
https://doi.org/10.1038/s41893-020-0554-1


Cite as: https://publications.pik-potsdam.de/pubman/item/item_24296
Abstract
To measure how moral behaviour interacts with pricing regimes, we conduct highly controlled experiments in which trading creates pollution. We compare indirect pricing (here, a cap and trade mechanism) and direct pricing (a tax) in an otherwise equivalent setting in which ‘producers’ are incentivized to emit CO2. ‘Judges’ decide on central trading parameters that may restrict socially harmful activities. Profit maximization predicts the same producer behaviour in either setting in the absence of regulation, yet we find a substantial share of producers refraining from emitting CO2 at all. Although judges restrict behaviour in similar ways across mechanisms, direct pricing more effectively accommodates moral behaviour than the quantity policy.