Experimental studies of a subsidy system aimed at reducing sales of environmentally harmful products

Lars Olsson disputerade 2007 på avhandlingen: Effects of certainty on decision making under uncertainty : using subsidies to reduce production of environmental harmful products

Introduction

The Kyoto Agreement resulted in the global goal of reducing carbon dioxide emissions. In order to meet this goal, among other things governments need to implement and evaluate strategies to reduce the increasing trends in production and consumption. The aim of this Ph.D. project is to investigate whether and how governments can subsidize for instance oil producers in a free market so that they reduce their production.

The objectives

The main focus of this project is price settings in a free market where producers compete with each other. Without influencing this competition, it would be possible for governments to subsidize the oil producers for what they do not sell (produce), thus creating incentives for them to not reduce prices below a certain level. It is however an empirical question to be addressed in the project how decision makers will react to different levels of governmental subsidies as well as uncertainties about this level over time, and uncertainties about how competitors will act. Also, any possible effects on competition will be investigated.

Methods

Experimental methods for studying simulated markets developed in psychology and experimental economics will be used.

Results

The results show that the investigated subsidy system lead to the expected effects of reduced sales (and thereby production) by increased price setting. Uncertainty of the size of the subsidy did not change the results. Also, and importantly, the competitive behaviour of the decision makers were not influenced by the subsidy, still it inhibited the start of price wars as was the case without the subsidy.

Conclusions

The proposed subsidy system may be used as a complement to the European Emission Trading Scheme in markets not covered by the scheme (i.e. fuels for private cars), reducing emissions levels toward the goals of the Kyoto Protocol. It may also be used as a tool to reduce the overuse of scarce resources (i.e. cod).

Links

www.RUSEDA.org

Publications and work in progress

Olsson, L. E. (In Press). Effects of Certainty on Decision Making Under Uncertainty: Using Subsidies to Reduce Production of Environmentally Harmful Products. Doctorial Dissertation, Göteborg University, Department of Psychology.

Johansson, L-O., Gustafsson, M., Olsson, L., & Gärling, T. (2007). Weighing third-party fairness, efficiency, and self-interest in resource allocation decisions. Journal of Economic Psychology, 28, 53-68.

Olsson, L. E., & Gärling, T. (2007). Staying Competitive While Subsidized: A Governmental Policy to Reduce Production of Environmentally Harmful Products. Manuscript submitted for publication.

Olsson, L. E. (2007). Diversification leading to inconsistent risk taking: Effects of subsidies in environmental regulation. Manuscript submitted for publication.

Olsson, L. E., Akiyama, M., Gärling, T., Gustafsson, M., & Loukopoulos, P. (2006). Examining the use of subsidies for the abatement of greenhouse gas emissions through experimental simulations. European Environment, 16, 184-197.

Olsson, L. E. (2006). Experimental Simulations of a Subsidy System to Reduce Production of Environmentally Harmful Products. Licentiate thesis, Göteborg University, Department of Psychology.

Olsson, L. E., Akiyama. M., Gärling, T., Gustafsson, M., & Loukopoulos, P. (2005). Experimental simulations of a subsidy system for sustainable production (Göteborg Psychological Reports, 35, No. 1). Göteborg, Sweden: Göteborg University, Department of Psychology.

Olsson, L. E., Akiyama. M., Gärling, T., Gustafsson, M., & Loukopoulos, P. (2005). Subsidies for sustainable production: Effects of changing subsidy level (Göteborg Psychological Reports, 35, No. 2). Göteborg, Sweden: Göteborg University, Department of Psychology.

Olsson, L. E. (2005). Reducing production of environmentally harmful products (Göteborg Psychological Reports, 35, No. 3). Göteborg, Sweden: Göteborg University, Department of Psychology.

Johansson, L.-O., Gustafsson, M., Olsson, L. E., & Gärling, T. (2003) Adverse Impact of Fairness on Efficient Outcomes of Resource Allocation Decisions (Göteborg Psychological Reports, 33, No. 3). Göteborg, Sweden: Göteborg University, Department of Psychology.

Conference Presentations

Boe, O., Olsson, L. E., & Selart, M. (2001). Does the Use of Decision Heuristics Influence Impulse Buying? Presented at the 18th Research Conference on Subjective Probability, Utility and Decision Making (SPUDM 18), Amsterdam, the Netherlands.

Olsson, L. E., Akiyama, M., Gärling, T., Gustafsson, M., & Loukopoulos, P. (2003). Reducing Sales of Environmentally Harmful Products: An Experimental Study of the Impact of Governmental Subsidies on Price Setting. Presented at the 10th International Conference on Social Dilemmas, Marstrand, Sweden.

Olsson, L. E., Akiyama, M., Gärling, T., Gustafsson, M., & Loukopoulos, P. (2004).The Dyadic Subsidy Game: Effects of Uncertain and Changing Subsidies on Price Setting. Presented at the XXVIII International Congress of Psychology, Beijing, China.

Olsson, L. E., Akiyama, M., Gärling, T., Gustafsson, M., & Loukopoulos, P. (2005). Experimental tests of system of governmental subsidies for sustainable production. Presented at the 7th Nordic Environmental Social Science (NESS) research conference, Göteborg, Sweden.

Olsson, L. E. (2005). Effects of uncertainty reduction and cooperation on price setting in an imperfect price-competition game. Presented at the 11th International Conference on Social Dilemmas, Krakow, Poland.