Webinar: Price, Beliefs, and Sustainable Consumption

To discourage demand for unsustainable products, policymakers can use price incentives or provide information about their negative impact. We conduct incentivized online experiments to study the effect of prices and information on the demand for a virtual product that is associated with CO2 emissions. We find that both policies have a substantial effect on consumption. The effect of information obtains not because it changes average beliefs, but because correcting low beliefs about the externality decreases consumption substantially, while correcting high beliefs about the externality leads only to a modest increase. In line with this, we find evidence that the marginal willingness to pay to reduce emissions declines with the size of the externality. This suggests that willingness to pay measures should take into account the size of the externality. We also investigate the interaction of prices and information. In particular, theories of motivated reasoning suggest that consumers might be more open to information when sustainable goods are more affordable. We do not find evidence for motivated reasoning or for an interaction between the two policies.