Working Paper: NBER ID: w31152
Authors: John A. List; Matthias Rodemeier; Sutanuka Roy; Gregory K. Sun
Abstract: While behavioral non-price interventions (“nudges”) have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes, while allowing for normative ambiguity about how nudges map into utility. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of non-price and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behavior in all three markets, they are not necessarily the most efficient policy. When nudges are debiasing, they are more efficient in the market for cigarettes, while taxes are more efficient in the vaccine and energy market. Interestingly, these conclusions also often hold when nudges are deceptive rather than debiasing. We identify two key factors that govern the difference in results across markets: i) an elasticity-weighted standard deviation of the behavioral bias, and ii) the magnitude of the average externality. Nudges dominate taxes whenever i) exceeds ii). Finally, we consider cases in which nudges cause direct psychic costs or benefits to consumers.
Keywords: nudges; taxes; welfare effects; behavioral economics; policy instruments
JEL Codes: C93; D61; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nudges (D91) | smoking cessation probability (I12) |
| nudges (D91) | cigarette demand (D12) |
| nudges (D91) | social welfare (I38) |
| cigarette tax (H71) | social welfare (I38) |
| nudges (D91) | vaccination take-up (I19) |
| nudges (D91) | average welfare gain from vaccination (D60) |
| optimal subsidy (H21) | average welfare gain from vaccination (D60) |
| nudges (D91) | electricity consumption (L94) |
| nudges (D91) | welfare gains from nudging (D69) |
| optimal tax (H21) | welfare gains from nudging (D69) |