Publications

Summary

We analyze the effectiveness of environmental policy when consumers are subject to social influence. To this end, we build a model of consumption decisions driven by socially-embedded preferences formed under the influence of peers in a social network. This setting gives rise to a social multiplier of environmental policy. In an application to climate change, we derive Pigouvian and target-achieving carbon taxes under socially-embedded preferences. Under realistic assumptions the social multiplier is equal to 1.30, allowing to reduce the effective tax by 38%. We show that the multiplier depends on four factors: strength of social influence, initial taste distribution, network topology and income distribution. The approach provides a basis for rigorously analyzing a transition to low-carbon lifestyles and identifying complementary information and network policies to maximize the effectiveness of carbon taxation.

Summary

We present a large-group experiment in which participants predict the price of an asset, whose realization depends on the aggregation of individual forecasts. The markets consist of 21 to 32 participants, a group size larger than in most experiments. Multiple large price bubbles occur in six out of seven markets. The bubbles emerge even faster than in smaller markets. Individual forecast errors do not cancel out at the aggregate level, but participants coordinate on a trend-following prediction strategy that gives rise to large bubbles. The observed price patterns can be captured by a behavioral heuristics switching model with heterogeneous expectations.

Summary

Agent‐based models (ABMs) have recently seen much application to the field of climate mitigation policies. They offer a more realistic description of micro behavior than traditional climate policy models by allowing for agent heterogeneity, bounded rationality and nonmarket interactions over social networks. This enables the analysis of a broader spectrum of policies. Here, we review 61 ABM studies addressing climate‐energy policy aimed at emissions reduction, product and technology diffusion, and energy conservation. This covers a broad set of instruments of climate policy, ranging from carbon taxation, and emissions trading through adoption subsidies to information provision tools such as smart meters and eco‐labels. Our treatment pays specific attention to behavioral assumptions and the structure of social networks. We offer suggestions for future research with ABMs to answer neglected policy questions.