Optimal Prosocial Nudging

40 Pages Posted: 27 Oct 2020

See all articles by Fredrik Carlsson

Fredrik Carlsson

Goeteborg University - School of Economics & Commercial Law

Olof Johansson-Stenman

Goeteborg University - School of Economics & Commercial Law

Date Written: April 1, 2019

Abstract

While nudges are still mostly associated with affecting individual choices for their own longrun interest, i.e. dealing with internalities, they are increasingly used in order to reduce externalities, such as environmental consequences. While we are gaining increasing insights into when and how nudges work, much less attention has been given to the normative aspects of nudging as a policy instrument to deal with externalities. We investigate optimal prosocial nudging under a number of different settings in a world where a conventional Pigovian tax can be used to a varying extent. We find that nudges typically only play a limited role when optimal taxes can be implemented. What we denote encouraging moral nudges, i.e. nudges where people’s choices are affected by strengthening consumers’ moral norms for doing the right thing, are more likely to play a role even when the tax is optimal compared to purely cognitive nudges. In addition, if a nudge better can target the right consumers, then it might also be optimal to use even when an optimal tax can be implemented. We also present decision rules for the optimal size of a nudge when an optimal tax cannot be implemented.

Keywords: nudge, environmental policy, behavior

JEL Classification: D90, H21, H23

Suggested Citation

Carlsson, Fredrik and Johansson-Stenman, Olof, Optimal Prosocial Nudging (April 1, 2019). CeCAR Working Paper Series No. 5, Available at SSRN: https://ssrn.com/abstract=3717392 or http://dx.doi.org/10.2139/ssrn.3717392

Fredrik Carlsson (Contact Author)

Goeteborg University - School of Economics & Commercial Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46 31-773 4174 (Phone)
+46 31-773 1043 (Fax)

Olof Johansson-Stenman

Goeteborg University - School of Economics & Commercial Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46-31-773 25 38 (Phone)
+46-31-773 13 26 (Fax)

HOME PAGE: http://www.handels.gu.se/econ/EEU/johansso.htm

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