Using business simulation games in regulatory impact analysis - the case of policies aimed at reducing nitrogen leaching

Oliver Musshoff and Norbert Hirschauer

Applied Economics, 2014, vol. 46, issue 25, 3049-3060

Abstract: In the past, regulatory impact analysis was predominantly based on the rational-choice-assumption of a completely informed and exclusively profit-maximizing homo oeconomicus. Real economic actors, however, are multiple-goal and boundedly rational decision-makers. An exclusive reliance on rational-choice models therefore generates the risk that both the pace and the type of behavioural adaptations to changing institutional environments are misjudged. Against this background, this article addresses three questions. First, can we use business simulation games as a convincing but low-cost experimental tool for policy analysis? Second, how do intentionally varied nitrogen extensification schemes impact the behaviour of students who participate in an explorative business simulation study? Third, do nitrogen reduction policies that are framed as voluntary as opposed to prescriptive schemes have a different impact on behaviour even if they lead to the same profits respectively? In our business simulation game, the student-participants take the role of farmers who are confronted with different policy measures aimed at reducing nitrogen loads. The student-farmers react very differently to different measures even though all measures have an identical impact on profitability. This is an indication that the behavioural changes that can be achieved per Euro of the taxpayers' money, and therefore the cost efficiency (and smartness) of regulatory measures, are contingent on their specific design.

Date: 2014
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DOI: 10.1080/00036846.2014.920482

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