Recent Trends in Behavioral Environmental Economics

Environ Resource Econ (2017) 67:403–411 DOI 10.1007/s10640-017-0162-3 PREFACE Recent Trends in Behavioral Environmental Economics Martin Kesternich1 · Christiane Reif1 · Dirk Rübbelke2 Published online: 1 June 2017 © Springer Science+Business Media Dordrecht 2017 1 Introduction The first fundamental theorem of standard welfare economics states that any equilibrium achieved by a competitive market leads to a Pareto efficient allocation of resources. Yet, due to market failures, inefficiencies regularly occur. As Cornes (2016: p 339) points out a “decentralized market equilibrium is likely to be inefficient as a consequence of various externalities, or spillovers.” Individual incentives are often at odds with collective group interest being described as the “impossibility of decentralized spontaneous solutions”, which are optimal (Samuelson 1954: p. 388). The domain of environmental economics looks back on a long history of developing solutions to these market failures (Shogren and Taylor 2008). Externalities and environmental public goods provide typical examples for market failures in environmental economics (e.g. Fullerton and Stavins 1998). Instruments established through government intervention may help to overcome such social dilemma situations and to prevent an inefficient allocation of resources. However, in many situations formal top-down regulation is far from being easy to implement or may even be impossible. In the case of global public goods no central international authority exists being able to enforce such interventions among sovereign countries (see e.g. Barrett 1994; Kaul et al. 1999; Altemeyer-Bartscher et al. 2010; Löschel and Rübbelke 2014; Kaul 2017). This in turn means that voluntary action becomes crucial even though only second best solutions might be reached. Researchers and policy makers are interested in how to stimulate such voluntary action through appropriate incentives. From an economic point of view, such behavior involves B Dirk Rübbelke Martin Kesternich Christiane Reif 1 Centre for European Economic Research (ZEW), L7,1, 68161 Mannheim, Germany 2 Technische Universität Bergakademie Freiberg , Schloßplatz 1, 09599 Freiberg, Germany 123 404 M. Kesternich et al. acting against one’s strict self-interest in many decision situations. The canonical economic model of behavior is based on the idea of ‘homo oeconomicus’. As, for instance, formulated by Kirchgäßner (2008: 9), the homo oeconomicus is based on the two central assumptions of fully rational and purely self-interested behavior. The critique concerning the idea of homo oeconomicus exhibits various facets and is therefore rather divergent. As an example, the orthodox and classical rationality assumption is largely assessed to be violated in many situations (Doucouliagos 1994). Yet, as Doucouliagos (1994: 879) points out, bounded rationality “[…] does not alter the essentially rational nature of Homo Economicus; it merely redefines the boundaries of rationality.” Understanding these boundaries of rational behavior is key to design applicable instruments in the field of environmental economics. At the same time, economic experiments provide evidence of individuals acting not entirely selfish but caring about fairness in many economic settings. These observations have inspired the theoretical literature to include fairness motives into the utility framework (see e.g. Meier 2006 for an overview). The behavioral economics literature challenges the concept(s) of homo oeconomics and its two main pillars of characterization—self-interest and rationality. Inter alia, Fehr and Gächter (1998) paired the homo oeconomicus with the so-called ‘homo reciprocans’, a person whose behavior is influenced by the idea of reciprocity. Besides the research field on self-interest, there is also a broad field of research on the rationality assumption. Camerer and Fehr (2006) point out that the (unbounded) rationality assumption builds on two aspects, namely correct beliefs—the judgement of an event or others’ behavior—and decision-making according to own preferences based on these beliefs. In turn, the limits in humans’ cognitive abilities lead to deviations in both components (Mullainathan and Thaler 2000). Simon (1955) denoted these cognitive constraints as bounded rationality. Camerer (1999) summarizes how the findings of experimental work by psychologists and economists have contributed to behavioral principles and links them to the corresponding economic standard theory. In this regard, he refers to four concepts: expected utility and prospect theory, equilibrium and learning, discounting utility and hyperbolic discounting, payoff maximization and social utility. These research areas are taken up by later survey articles on the topics of behavioral economics (see e.g. Mullainathan and Thaler 2000; Venkatachalam 2008; Pesendorfer 2006; Shogren et al. 2010; Gsottbauer and van den Bergh 2011) and are still subject of theoretical and empirical research aiming either at providing general applicable descriptions of human behavior or at explaining individuals’ actions in specific contexts. As Carlsson and Johansson-Stenman (2012) point out the main policy concerns in the environmental context are about externalities and not about bounded rationality or willpower. However, Croson and Treich (2014) stress that the complexity of environmental concerns, especially the long time perspective and the global dimension, might be the breeding ground for bounded rational behavior. The importance of behavioral economics for environmental economics is taken up by survey articles with different focus areas (see e.g. Brekke and Johansson-Stenman 2008; Shogren and Taylor 2008; Venkatachalam 2008; Shogren et al. 2010; Carlsson and Johansson-Stenman 2012; Croson and Treich 2014). In these survey articles the authors discuss how far the standard model is applicable. Brekke and Johansson-Stenman (2008) emphasize that especially the findings concerning risk attitudes and preferences over time are particularly relevant in the context of climate change. Venkatachalam (2008) focuses on environmental policy and argues that policy failures are partly driven by neglecting behavioral aspects when applying policy interventions. Shogren and Taylor (2008) explain that standard theory cannot adequately predict actual behavior in the environmental context as soon as markets fail and people do not behave as homines oeconomici. This is because rationality in economics is a social construct defined by market- 123 Recent Trends in Behavioral Environmental Economics 405 like arbitrage (see e.g. Arrow 1986). However, Shogren et al. (2010) argue that the standard theory can still provide as useful upper benchmark acting as comparison for revealed behavior. Brekke and Johansson-Stenman (2008) as well as Carlsson and Johansson-Stenman (2012) stress the social context as an additional factor—besides individuals’ non material motivat (...truncated)