Scandinavian Working Papers in Economics

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

No 719: Environmental investment decisions: experimental evidence of team versus individual decision making

Simon Felgendreher (), Magnus Hennlock , Åsa Löfgren () and Conny Wollbrant
Additional contact information
Simon Felgendreher: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Magnus Hennlock: olicy and Economy, IVL Swedish Environmental Research Institute
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, University of Stirling

Abstract: We study experimentally how investment decisions are affected by equally stringent but different policy regime treatments and how differences depend on whether decisions are made individually or in groups. In our experiment, subjects decide on an investment level either individually or jointly in groups of three. In addition, decisions are made subject to either a tax or performance standard treatment. We find that investments are significantly higher and closer to the level that maximizes revenues of the hypothetical firm in the performance standard treatment. This holds for both individual and group decisions, but we find no evidence of an interaction effect. Even though groups seem to have a knowledge advantage, they are not able to benefit from it, since intragroup communication is not able to transmit the microeconomic reasoning to group members without such knowledge. Also, groups are not able to attenuate the attention bias of focusing on selective information depending on the specific policy treatment.

Keywords: group behavior; investment inefficiencies; policy instruments

JEL-codes: C92; D70; H32

37 pages, January 2018

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