Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 687: Prices versus Standards and Firm Behavior: Evidence from an Artefactual Field Experiment

Magnus Hennlock (), Åsa Löfgren () and Conny Wollbrant ()
Additional contact information
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
Conny Wollbrant: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden

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

JEL-codes: C93; H32; L20

49 pages, First version: January 2017. Revised: November 2017.

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