Optimal Prosocial Nudging

Fredrik Carlsson and Olof Johansson-Stenman ()
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Olof Johansson-Stenman: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden, https://economics.gu.se/

No 757, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: While nudges are still mostly associated with affecting individual choices for their own long-run 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 (search for similar items in EconPapers)
JEL-codes: D90 H21 H23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-04, Revised 2025-02-06
New Economics Papers: this item is included in nep-cbe, nep-ene, nep-env, nep-evo, nep-mic and nep-res
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