Essays in Behavioral Public Economics

This dissertation studies how insights from behavioral economics affect the economic analysis of public policy. The thesis consists of four chapters that make use of different methods: laboratory experiments, quasi-experimental and structural econometric methods, as well as theoretical analyses. The first chapter investigates if social image concerns affect the take-up of a redistributive transfer. In a lab experiment, we vary the visibility of the take-up decision and find that subjects are substantially less likely to take up a public transfer. Moreover, we vary whether transfer eligibility is based on ability or luck, and how the transfer is financed. The results show that subjects avoid the inference both of being low-skilled (ability stigma) and of being willing to live off others (free-rider stigma). These results support our predictions from a theoretical model of social image concerns. Using a placebo treatment, in which the take-up is uninformative about the claimant's type, we exclude other explanations for the observed stigma effects. Although stigma reduces take-up, elicitation of political preferences reveals that only a minority of “taxpayers” vote for the public transfer. The second chapter studies if sin taxes on soft drinks and fats are effectively targeting consumers with low self-control. For identification, we exploit upward and downward shifts of the soft drink tax and the fat tax in Denmark. We assess the response in purchases empirically using the GfK Consumerscan household panel. With this data, we can separate the sample in consumers with low and high levels of self-control using a survey measure. We find that consumers with low self-control reduce purchases less strongly than consumers with high self-control when taxes go up, but increase purchases to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We show theoretically that these observations are consistent with a model of self-control and rational habit formation. The results suggest that price instruments may not be an effective tool for targeting self-control problems. The third chapter uses a structural demand model to analyze the impact of soft drink taxes in the presence of habit formation and stockpiling. The model is estimated using nested logit and incorporates unobserved heterogeneity in tastes. The estimated model is used to simulate short-run and long-run price elasticities, as well as the simulated impact of different soft drink taxes. The results show that long-run price elasticities are approximately 20 percent larger than short-run elasticities due to habit formation. Moreover, excise taxes on sugary soft drinks are more effective in reducing sugar consumption than ad valorem taxes and excise taxes that do not distinguish between sugary and diet beverages. The fourth chapter investigates if individuals select information structures in order to protect their motivated beliefs. In a lab experiment, subjects can select the information structure that gives them feedback regarding their rank in the IQ distribution (ego-relevant treatment) or regarding a random number (control treatment). We find that individuals in the ego-relevant treatment select information structures, in which negative feedback is less salient. When receiving such negative feedback with lower salience they update their beliefs less, but only when feedback is ego-relevant. Hence, subjects select information structures that allow them to misinterpret negative feedback in a self-serving way. Moreover, individuals in the ego-relevant feedback choose less informative feedback

Eine Softdrinksteuer zur fiskalischen Konsumsteuerung

Am 11. Oktober, dem sogenannten "Welt-Adipositas-Tag", hat die Weltgesundheitsorganisation (WHO) einen Bericht vorgestellt, in dem sie eine 20%-ige Steuer auf zuckergesüßte Getränke empfiehlt (WHO 2016). Zuletzt hat Großbritannien die Einführung einer solchen Abgabe im Haushalt 2016 beschlossen und erwartet, nebst Einnahmen von 520 Milliarden Pfund im ersten Jahr, einen deutlichen Rückgang des Übergewichts (HM Treasury 2016). Ob eine solche fiskalische Konsumsteuerung tatsächlich zu einer gesünderen Ernährung führt, hängt von mehreren Faktoren ab: Wie stark reagiert die Nachfrage nach Softdrinks auf eine Preisänderung? Wie wirkt sich die Steuer auf die Nachfrage nach anderen gesunden oder ungesunden Gütern aus? Wird die Steuerlast stärker von Produzenten oder Konsumenten getragen? Dieser Text fasst den aktuellen Forschungsstand im Hinblick auf diese und weitere Fragen zusammen

Sin Taxes and Self-Control

"Sin taxes" are high on the political agenda in the global fight against obesity. According to theory, they are welfare improving if consumers with low self-control are at least as price responsive as consumers with high self-control, even in the absence of externalities. In this paper, we investigate if consumers with low and high self-control react differently to sin tax variation. For identification, we exploit two sets of sin tax reforms in Denmark: first, the increase of the soft drink tax in 2012 and its repeal in 2014 and, second, the fat tax introduction in 2011 and its repeal in 2013. We assess the purchase response empirically using a detailed homescan household panel. Our unique dataset comprises a survey measure of self-control linked to the panelists, which we use to divide the sample into consumers with low and high levels of self-control. We find that consumers with low self-control reduce purchases less strongly than consumers with high self-control when taxes go up, but increase purchases to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We find empirical and theoretical support that habit formation shapes the differential response by self-control. The results suggest that price instruments are not an effective tool for targeting self-control problems

Confidence and College Applications: Evidence from a Randomized Intervention

This paper investigates the role self-confidence plays in college applications. Using incentivized experiments, we measure the self-confidence of more than 2,000 students applying to colleges in France. This data reveals that the best female and low-SES students significantly underestimate their rank in the grade distribution compared to male and high-SES students. By matching our survey data with administrative data on real college applications and admissions, we show that miscalibrated confidence affects college choice on top of grades. We then estimate the impact of a randomized intervention that corrects students' under- and overconfidence by informing them of their real rank in the grade distribution. The treatment reduces the impact of under- and overconfidence for college applications, to the point where only grades but not miscalibrated confidence predict the application behavior of treated students. Providing feedback also makes the best students, who were initially underconfident, apply to more ambitious programs with stronger effects for female and low-SES students

Protecting the ego : motivated information selection and updating

We investigate whether individuals self-select feedback that allows them to maintain their motivated beliefs. In our lab experiment, subjects can choose the information structure that gives them feedback regarding their rank in the IQ distribution (ego-relevant treatment) or regarding a random number (control). Although beliefs are incentivized, individuals are less likely to select the most informative feedback in the ego-relevant treatment. Instead, many individuals select information structures in which negative feedback is less salient. When receiving negative feedback with lower salience subjects update their beliefs less, but only in the ego-relevant treatment and not in the control. Hence, our results suggest that individuals sort themselves into information structures that allow them to misinterpret negative feedback in a self-serving way. Consequently, subjects in the IQ treatment remain on average overconfident despite receiving feedback

Welfare Stigma in the Lab: Evidence of Social Signaling

Using a laboratory experiment, we present first evidence that stigmatization through public exposure causally reduces the take-up of an individually beneficial transfer. Our design exogenously varies the informativeness of the take-up decision by varying whether transfer eligibility is based on ability or luck, and how the transfer is financed. We find that subjects avoid the inference both of being low-skilled and of being willing to live off others. Using a placebo treatment we can exclude other explanations for the observed stigma effect. In the experiment, social stigmatization implies a reduction in the take-up rate of 30 percentage points

Fair Procedures with Naive Agents: Who Wants the Boston Mechanism?

We study preferences over procedures in the presence of naive agents. We employ a school choice setting following Pathak and Sönmez (2008) who show that sophisticated agents are better off under the Boston mechanism than under a strategy-proof mechanism if some agents are sincere. We use lab experiments to study the preferences of subjects for the Boston mechanism or the assortative matching. We compare the preferences of stakeholders who know their own role with agents behind the veil of ignorance and spectators. As predicted, stakeholders vote for the Boston mechanism if it maximizes their payoffs and vote for the assortative matching otherwise. This is in line with the model of Pathak and Sönmez (2008). Subjects behind the veil of ignorance mainly choose the Boston mechanism when the priority at schools is determined randomly. In a second experiment with priorities based on performance in a real-effort task, spectators whose payoff does not depend on the choice of the mechanism are split in their vote for the Boston mechanism and the assortative matching. According to the spectators' statements in the post-experimental questionnaire, the main reason for preferring the Boston mechanism is that playing the game well deserves a higher payoff. These findings provide a novel explanation for the widespread use of the Boston mechanism

Softdrinksteuer: Proportionale Steuer ist der vielversprechendste Ansatz

Hoher Zuckerkonsum wird mit Adipositas, Diabetes Typ II und Herz-Kreislauf-Erkrankungen in Verbindung gebracht. Viele Menschen leiden an diesen Krankheiten, die hohe Kosten für die Gesundheitssysteme verursachen. Daher wird immer häufiger die Forderung nach einer Zuckersteuer laut, auch in Deutschland. Einige Länder haben bereits eine Steuer auf zuckerhaltige Getränke eingeführt und daraus lassen sich einige Lehren ziehen. Der Konsum der besteuerten Getränke ging in den betroffenen Ländern merklich zurück, jedoch wurde teilweise auf andere ungesunde Produkte ausgewichen - sogenannte Substitutionseffekte. Die Tatsache, dass eine solche Steuer niedrige Einkommen proportional stärker belastet als hohe, wiegt weniger schwer, wenn man progressive Gesundheitseffekte berücksichtigt. Insgesamt scheint eine proportionale Steuer auf den Zuckergehalt gut geeignet, da sie den Produzenten Anreize gibt, den Zuckergehalt in ihren Produkten zu reduzieren