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The social multiplier of environmental policy: Application to carbon taxation

Théo Konc, Ivan Savin and Jeroen van den Bergh

Journal of Environmental Economics and Management, 2021, vol. 105, issue C

Abstract: We analyze the effectiveness of environmental policy when consumers are subject to social influence. To this end, we build a model of consumption decisions driven by socially-embedded preferences formed under the influence of peers in a social network. This setting gives rise to a social multiplier of environmental policy. In an application to climate change, we derive Pigouvian and target-achieving carbon taxes under socially-embedded preferences. Under realistic assumptions the social multiplier is equal to 1.30, allowing to reduce the effective tax by 38%. We show that the multiplier depends on four factors: strength of social influence, initial taste distribution, network topology and income distribution. The approach provides a basis for rigorously analyzing a transition to low-carbon lifestyles and identifying complementary information and network policies to maximize the effectiveness of carbon taxation.

Keywords: Carbon pricing; Climate policy; Externality taxation; Endogenous preferences; Social network (search for similar items in EconPapers)
JEL-codes: D11 D85 D91 H23 Q58 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:105:y:2021:i:c:s0095069620301194

DOI: 10.1016/j.jeem.2020.102396

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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