Tuesday, March 9, 2010

Libertarian Paternalism Finally Goes Mainstream

In a fantastic new paper published this week in Science, economists Hunt Allcott and Sendhil Mullainathan investigate behavior and decisionmaking in the context of energy policy: 

"To combat climate change, many economists and policymakers advocate price-based approaches, such as greenhouse gas emissions taxes and emissions trading programs, or technology-based approaches, such as R&D subsidies and public-private R&D partnerships.  In the end, however, both types of approaches rely on consumers and firms to make different choices: they will need to change what they do and what they buy in response to increases in the relative prices of carbon-intensive goods.  A recently-growing body of research in psychology and behavioral economics suggests that non-price interventions can be just as powerful as prices in changing consumer choices."

I'm thrilled to see these ideas popping up with increasing regularity, and as I've said before, more funding for social science research could yield higher returns than the current technology and natural science monopoly.

Behavioral economics has been criticized as a "negative theory," concerned more with critiquing mainstream economics than developing new models.  The empirical success of the behavioral perspective in explaining why cost-effective energy efficiency improvements don't occur would seem to disprove this criticism.  Additionally, behavioral economics flows naturally into the normative realm, inspiring policy correctives in the forms of choice architecture and nudges.

For a short interview with Hunt Allcott, click here.

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