INCENT II - experimental development of incentive mechanisms for environmental policy

In the field of standard economics, predictions on how individuals are likely to behave are always derived from an overarching theory. This neo-classical theory is based on the premise that players act rationally and in a way that maximises utility at all times. Although these simplistic assumptions have led to a significant increase in knowledge in many sectors, studies from the fields of psychology, sociology and behavioural economics demonstrate that individuals often act irrationally. Empirical findings indicate that, when making decisions, players are often guided by simple rules of thumb rather than the calculated expected benefit. Numerous environmental policy instruments fail to account for the peculiarities of human behaviour. Gaining a deeper understanding of these interrelationships can, therefore, help optimise these instruments.

This project involved adelphi conducting various experiments to establish how to enhance environmental policy instruments, taking into account findings from the field of behavioural economics. In cooperation with Germany’s second largest consumer electronics store adelphi examined, among other issues, how labels indicating the annual operating costs for large household devices influence consumers to purchase particularly energy-efficient products. At the same time, adelphi’s project partner, the University of Kassel, conducted a laboratory experiment with Kassel’s municipal utilities company to determine what additional information could be added to electricity bills – for example, the average power consumption in the neighbourhood – to encourage individuals to cut their energy consumption. The findings from these experiments were incorporated into recommendations on how insights in the field of behavioural economics can promote sustainable consumption patterns.