UC Santa Barbara

My dissertation consists of three chapters that use a behavioral economic framework to enrich our understanding of the political economy of environmental policies.

Chapter 1 explores the role of cognitive frictions in the perceived distributional impacts of externality pricing. Despite their desirable properties, carbon prices have received very low public support. Leading explanations attribute the rejection of carbon pricing to preferences and ideology. I show that, instead, much of this rejection is due to mistakes voters make when reasoning about the consequences of such policies. Using laboratory experiments, I show that subjects have specific blind spots in reasoning about a key pricing policy structure, even in abstract tasks that remove scope for preferences and ideologies. Based on these findings, I introduce a new policy that is isomorphic to a leading carbon pricing proposal, but engineered to be robust to these cognitive frictions. The new policy (which I call ``carbon penalty and reward'') garners significantly more support than the original proposal (known as ``carbon fee and dividend''). Using independent cognitive measures, I show that the increase in support is concentrated in people exhibiting systematic difficulty reasoning about a key policy structure.

Chapter 2, which is joint work with Guglielmo Zappalà, details how exposure to environmental policy in the past shapes preferences for them. Low public support has been an obstacle to the enactment of stronger environmental policies. Yet if policies are enacted, support for them may change. Using surveys covering 38 countries around the world, we study the dynamics of environmental policies and individual preferences over time. Exploiting within-country, across birth-cohort variation in exposure to environmental policy stringency, we document that cohorts exposed to more stringent policies in the past are more supportive of environmental policies at the time of the survey, with the effect largely driven by exposure during a period of early adulthood known as the formative age window. This result even holds when evaluating exposure to a specific policy instrument, environmental taxes. Past exposure to these taxes improves support for them, but not for other environmental policies. This relationship suggests that a society's environmental policy attitudes evolve endogenously, with implications for normative frameworks used in welfare economics.

Chapter 3 evaluates how quick, inattentive decision-making systematically distorts perceptions of the effectiveness of pricing in reducing pollution externalities. When people are asked to make policy choices that affect a good's price -- for example, a tax to reduce a negative externality -- we traditionally assume that they accurately perceive quantities demanded conditional on price. But failures to consider substitutes and other adaptations to a permanent price shock can result, ex ante, in a perception of inelasticity and policy ineffectiveness. In past surveys, perceptions of ineffectiveness are among the main reasons voters do not support a carbon tax, believing it would fail to cut emissions unless the revenue were spent on offsetting projects. I implement an incentivized survey experiment to test whether increasing time and promoting hypothetical thinking increase subjective perception of responsiveness of demand to price, and I find meaningful, directional effects.