Pro-Environmental Behavior and Rational Consumer Choice

More documents

Recommendations

Info

$(Microsoft PowerPoint - Vorlesung_1_Einf\374hrung_SS08.ppt)$

Pro-Environmental Behavior and Rational Consumer Choice 6 By running ordered-probit regressions, we find that life satisfaction is positively and significantly associated with (a) the consumption of environment-friendly products, (b) the recycling or reuse of goods, and (c) water conservation. Our results are robust to controlling not only for observable socio-demographic characteristics and unobserved inter-country and inter-temporal heterogeneity but also for differences in personal attitudes and values. Especially, we control for differences in environmental preferences, thus addressing the possibility that people with pro-environment attitudes may be inherently more (or less) satisfied, independent of the corresponding behaviors. As we find the positive and significant association between pro-environment behavior and life satisfaction to be robust with respect to this check, we conclude that the effects we are measuring cannot be attributed to differences in attitudes but, in fact, refer to behaviors. Our results suggest that, on average, people make sub-optimal choices with respect to pro-environmental behaviors. With respect to all three behaviors we find that the distortions are smaller in better educated people. Moreover, in the cases of environmental friendly products and of recycling we find that the distortions are smaller if the respective behaviors are more widespread in society. These findings suggest that better cognitive abilities and a general familiarity with pro-environmental behaviors may help avoid biased assessments of their benefits and costs. In addition, we find that with respect to environmental friendly products and recycling the distortions are significantly larger in materialistically oriented persons. This is consistent with the idea that an under-rating of environmentally relevant quality is partly the mirror image of an over-rating of the quantity consumed. In relating our paper to previous literature, it is useful to distinguish between studies of distorted consumer choice and its underlying mechanisms, and studies of the association between subjective well-being and environmental conditions or environmental awareness. The former category will be discussed in detail later in the paper. Studies addressing the association between subjective well-being and environmental conditions usually use the estimated relationship between these variables to derive the implied monetary valuation of environmental amenities, see Welsch (2002, 2006) with respect to air pollution, Israel and Levinson (2003) with respect to water pollution, Frijters and Van Praag (1998) and Rehdanz and Maddison (2005) with respect to climate, Van Praag and Baarsma (2005) with respect to aircraft noise, Luechinger and Raschky (2006) with respect to flood, and Carrol et al. (2008) with respect to drought. These papers generally find that adverse environmental conditions have significant negative consequences for subjective well-being which translate into considerable monetary valuation of improved environmental quality (see Welsch and Kühling 2008 for a survey). A paper addressing the relationship between measures of subjective well-being and environmental awareness is Ferrer-i-Carbonell and Gowdy (2007). That paper finds a negative impact of concern about ozone depletion on individuals’ well-being and a positive one for concern about species extinction. In relation to that literature, the paper’s contribution is to employ data on subjective well-being for studying environmentally-relevant consumer behavior, instead of given environmental conditions or environmental awareness. It explores the rationality of choice – previously examined with respect to income acquisition relative to social activities and
Pro-Environmental Behavior and Rational Consumer Choice 7 human relations – with respect to pro-environment consumption. The results of the paper suggest that environment-friendly consumption is not only less than socially optimal (due to the usual public good considerations), but, in addition, may even be less than individually rational. The paper is organized as follows. Section 2 provides the theoretical framework and section 3 the empirical framework. Section 4 presents the empirical results. Section 5 concludes. 2 Theoretical Framework 2.1 Conceptual Background and Previous Literature As mentioned in the introduction, recent research in behavioral economics entails that, in contrast to the Rational Choice Model, people commit systematic mistakes when making decisions. These mistakes imply distorted choices, that is, choices which are not utilitymaximizing. As a result, people are less well off than they could be, according to their own evaluation (see Stutzer and Frey 2007 for a survey). 4 This proposition will be referred to as the Distorted Choice Hypothesis (DCH) of consumer choice. The DCH relies on a distinction between two concepts of utility that have been used in the literature of economics: experienced utility and decision utility (Kahneman et al. 1997). Experienced utility is the ex post hedonic quality (satisfaction) associated with an act of choice. Decision utility is the ex ante expectation of experienced utility. The DCH presupposes a deviation between decision utility and experienced utility, that is, a failure of affective forecasting (Loewenstein and Adler 1995, Loewenstein and Schkade 1999, Loewenstein et al. 2003, Gilbert et. al. 1998, Wilson and Gilbert 2003). DCH entails that these forecasting errors are not just random errors (which would cancel out in the aggregate) and that they are different for different categories of goods and activities (Kahneman and Sugden 2005). A major source of incorrect utility forecasting is reference-dependence of (experienced) utility. Reference-dependence means that outcomes are judged relative to some benchmark. An important benchmark may be the individual’s own past performance. Outcomes will be evaluated differently when the benchmark changes over time. For instance, an individual’s satisfaction with her income is lower when the level of income attained in the past is higher (van Praag 1993, Easterlin 2001, Stutzer 2004, for a survey see Clark et al. 2008). This reflects the phenomenon known as habituation or hedonic adaptation (see Frederick and Loewenstein 1999 for a review). Failure of utility forecasting arises when hedonic adaptation is unforeseen (or inaccurately foreseen). Hedonic adaptation does not apply to all sorts of outcomes alike. Especially, people do not seem to adapt their utility evaluation in the case of outcomes which relate to so-called 4 These propositions do not presume a cardinal notion of utility. They merely assert that choices are attainable which would be preferred to those actually made.
Page 1: Diskussionspapierreihe Neuere ökon
Page 4 and 5: Pro-Environmental Behavior and Rati
Page 34 and 35: Table B4: Distribution of life sati
Page 36 and 37: Wirtschaftskulturelle Einflussfakto
Page 38: Wirtschaftskulturelle Einflussfakto

Pro-Environmental Behavior and Rational Consumer Choice

Create successful ePaper yourself

Delete template?

Save as template?