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Prices versus Standards and Firm Behavior: Evidence from an Artefactual Field Experiment

Magnus Hennlock (), Åsa Löfgren () and Conny Wollbrant ()
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Magnus Hennlock: Policy and Economy, IVL Swedish Environmental Research Institute,, Postal: P.O. Box 530 21 S-400 14, Gothenburg, Sweden
Åsa Löfgren: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O.Box 640, SE 40530 GÖTEBORG, Sweden, http://www.economics.gu.se

No 687, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: We conduct an artefactual field experiment in which 164 managers and senior advisors recruited from Swedish industry were presented with a task of maximizing net revenue from abatement investments under three different but equally stringent environmental policy regimes. We find that investment decisions are strongly influenced by type of policy instrument. Economic instruments and performance standards cause different attentional and judgment biases that are inconsistent with standard economic theory. Inconsistencies are larger with economic policy instruments (tax and subsidy) than with performance standards even though subjects’ attention to cost minimization was greater with economic instruments than under performance standards. Inconsistencies are larger with economic policy instruments (tax and subsidy) than with performance standards even though subjects’ attention to cost minimization was greater with economic instruments than under performance standards.

Keywords: artefactual field experiment; bounded rationality; attentional bias; investment inefficiencies; firm; regulation; policy (search for similar items in EconPapers)
JEL-codes: C93 H32 L20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-reg and nep-res
Date: 2017-01, Revised 2017-11
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