Preferences over policy instruments to correct externalities: an experimental approach

• Applicant: Dr. Renke Schmacker
• Subject Area: Economic Policy, Applied Economics ; Economic Theory
• Term: since 2025
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 557641763

Many recent crises revolve around externalities, that is, situations where the behavior of one agent imposes costs or benefits on another agent without taking these external effects into account. Economists have studied a range of policy instruments to align individual incentives with welfare-optimal behavior. Examples include taxes and subsidies, lotteries, but also rationing regimes, regulatory policy, and sanctions. While the previous literature mainly studied the effectiveness of different policy instruments, this project aims to analyze what type of policy instruments people prefer and why they do so. For example, people may differ in their perceptions of the efficiency of the instruments but also in their views about their fairness and distributional effects. Understanding these preferences has direct policy relevance since it informs about which policies are politically feasible and accepted by the public. The project will use a combination of laboratory and large-scale survey experiments. The lab experiments use tightly controlled spectator designs, thereby eliciting impartial views of subjects without being implicated by their own self-interest. The survey experiments aim to complement these results by investigating how representative samples reason about the policy instruments, and how their reasoning depends on demographic and political attitudes. The project consists of two sub-projects that aim to investigate different aspects of preferences over policy instruments: The first subproject elicits individuals’ preferences over different corrective instruments (taxes, subsidies, lotteries), which aim to incentivize sustainable consumption of natural resources like water or gas. The second sub-project studies people’s preferences over rationing mechanisms for natural resources in times of extreme scarcity. The experimental approach allows to vary the choice situations in order to isolate, for example, the impact of the instruments’ distributional effects on preferences.

• DFG Programme: Research Grants
• International Connection: Sweden
• Cooperation Partners: Professor Dr. Thomas Giebe; Dr. Tobias König