Foreword
This book has arrived on the scene at just the right moment, addressing as it does environmental economics illuminated by incentive theory. The Nobel Prize awarded to the economist Richard Thaler in 2017 is an indicator of the major development undergone by incentive theory over the past few decades, symbolizing its relevance to numerous current issues.
For its part, environmental economics has rarely been so topical in its various facets: from global risks such as the greenhouse effect to localized health problems related to air pollution in large cities to the negative consequences for biodiversity of ever more highly industrialized agricultural practices, to cite just a few striking examples.
The contribution of economists to the analysis of individual behaviors is enabling us to assess and reform public policies on these burning issues. Modern theory has overhauled the approach considerably by emphasizing the role of intrinsic incentives (an area long left to psychologists alone) alongside the extrinsic incentives more familiar to economists, such as taxes and subsidies, or market mechanisms if market structures have already been established.
The central question of environmental political economics is, in theoretical terms, the way in which common goods such as non-renewable natural resources (oil, minerals, etc.) as well as renewable ones (arable land, forests, unique ecosystems, renewable resources of all types, etc.)1 should be managed. Another way of expressing the problem in economist-speak is: "How can externalities be internalized?" Externality, in the case of exhaustible resources, stems from asymmetrical interaction between generations: oil consumed by current generations is a market object that excludes future generations - which are not present at the negotiation table. Externality in the case of natural resources stems from individual behaviors such as pollution or over-exploitation that are not compensated for by monetary transactions. In both cases, the market prices of goods produced using natural resources (or environmental resources in general) are therefore false, meaning that individual behaviors based on these prices are also inappropriate in terms of the common good.
For an economist, the existing market mechanisms supposed to be spontaneously driving decentralized economic systems toward a socially optimum form are insufficient or even non-existent in the case of uncompensated externalities. This situation must be remedied by causing the socioeconomic system to resume a state of being correctly market-oriented, one way or another. This means correcting "market failures", for example, via taxes or public subsidies, or even creating markets, as in the case of greenhouse gas emission rights systems, the first major international application of which was the Kyoto Protocol, which was signed in December 1997 and took effect in 2005.
Applications of incentive theory are paving the way for a new approach to environmental policy, by playing on individual motivations that are not directly economic without being normative in the sense of administrative or legal regulations. Individuals (fortunately) are not the purely individualist, rational actors postulated by standard economic theory; they are able to act while taking into account the common good. They can also be manipulated for a good cause if their various cognitive biases are exploited. It is to all of these questions that this book is devoted, exploring various dimensions throughout its chapters: how can the role of incentives in general and environmental incentives in particular be analyzed and justified? Which incentives (monetary or non-monetary) should be chosen? How do incentives interfere with the spontaneous motivations of actors? Where do these mechanisms, aimed at individuals, fall within the logic of organizations and institutions?
Chapter 1 written by Nathalie Berta addresses the history of incentives in environmental economic thought. It is fascinating to note while reading this chapter how the issues invoked have been present at least since the early 20th Century, and to observe the extent to which the issues have remained fresh. On the other hand, analytical tools have advanced considerably, as have concrete applications in terms of public policy (and organizational strategy). On a personal note, as a doctoral student and then a young researcher in the 1970s and 1980s, I studied highly theoretical models of rights markets (to exploit or pollute) with little idea that, some years later, a whole section of the international community would be attempting to implement a global emissions rights market. Chapter 1 neatly summarizes the entire evolution of economic thought in interaction with its applications, from the first theoretical contributions by great authors such as Marshall, Pigou and Coase to new approaches based on the recognition of the cognitive biases that affect decisions impacting the environment. Chapter 2, written by Nguyen-Van and Pham, revisits this history of theoretical forms of environmental regulation by discussing the respective causes of the ineffectiveness of the policies corresponding to them. Included are a discussion of Pigovian taxes, the externality market introduced by Coase, regulation and the taking into account of behavioral biases.
Chapter 3 by Ouvrard and Stenger on regulation through nudges directly addresses the new literature on regulation taken from research in psychology and experimental economics to discuss the implementation of new regulatory instruments. Unlike traditional instruments, a nudge is a simple, cost-effective and non-restrictive action. The objective remains the same: guiding individuals so that they make decisions that will improve their own well-being or that of society as a whole. This raises two types of questions:
- - If individuals can "improve" their behavior, does this mean that they are not naturally rational, for example, when they do not have all the information necessary to make a decision, or when they display any cognitive bias. We must understand, then, which types of cognitive limits are precisely targeted by policies utilizing nudges.
- - If individual actions are "guided", this raises an ethical question. Does a nudge respect individual autonomy? Is there a risk of manipulation in the negative sense? Because nudging is based on the existence of a cognitive bias, does it not then reinforce this bias?
Two types of experiments could help to assess the interest of green nudges (that is, nudges applied to environmental policies) and to determine whether or not they are superior to monetary instruments, confirm their social acceptability, and possibly aid reflection on their ethical risks: full-scale experiments (for example, on water or electricity consumption), and laboratory tests on subjects (experimental economics). "Real-life" experiments certainly have the advantage of realism, but experimental economics enables us to compare the effectiveness of various instruments and to correlate these experiments with psychological profiles tested in the same laboratory. Thanks to this research, economists can help regulators to implement nudges with the benefit of anticipating their relative effectiveness, and even to avoid certain problems, such as the boomerang effect (for example, in the case of a plan that acts on individual information and competition, when the more virtuous subjects may slacken their spontaneous effort upon comparing themselves to less virtuous subjects).
Here, readers will find a complete introduction to all the ways of influencing behavior based on the psychological characteristics of individuals: ego and self-image, comparison to others, preference for simple information, preference for the status quo while being attracted by anything that appears new, playfulness, etc. Understanding the characterology of the target helps in choosing the correct instrument. For example, information on their contribution to the greenhouse effect is a priori ineffective with a climate-change skeptic. We may therefore try other nudges, or fall back on the use of monetary instruments.
Chapter 4 by Bazart and Romaniuc focuses on the question of motivation. Pro-environmental behaviors must be examined in all their complexity in order to avoid the negative effects of certain policies. Here, current waste-prevention policies are evaluated in light of an understanding of the complexity of individual motivations.
The standard economic tool on which many policies are based is the principal-agent theory. The incentive system constructed by the principal (the government or insurance company) must change the agent's (citizen, civil servant, insurance policyholder) perception of the task delegated to them. This type of instrument is usually monetary, playing on the cost or benefit to the agent. For example, the motivational pricing of the weight of waste produced (measurement has been mandatory in France since 2014) is meant to send a price signal to households to encourage them to engage in pro-social (pro-environmental) behavior. The problem becomes more complicated if there is an existing incentive that predates monetary motivation. Understanding people's real cognitive and behavioral systems makes it possible to broaden the range of tools aimed at guiding their behaviors by changing their perception of their actions. This understanding of the complexity of motivations is also useful in avoiding the pitfalls of potential conflict between intrinsic motivation (personal ethics or social...
