Staying competitive while subsidized: a governmental policy to reduce production of environmentally harmful products

A price-setting experiment was conducted to investigate whether a proposed governmental subsidy system to reduce sales and production of environmentally harmful products would maintain competition, as required by EU regulations. Dyads of participants played the role of producers, independently setting unit prices for their products in a sequence of trials with feedback. In experimental conditions a subsidy was paid for unsold units, a system which had previously been found to raise prices and reduce the number of units sold. For half of the dyads in each condition the payoffs were individual, in the other half they were split equally to motivate cooperation. Substantiating that the subsidy did not eliminate competition, the prices were set lower and incomes were lower when the payoffs were individual than when they were split equally. The participants also adjusted their prices to increase their own payoff, taking into account the prices set by the others when the payoffs were individual—which they did not when the payoffs were split equally. The results support the claim that the proposed subsidy system is effective in raising prices so that sales and production of environmentally harmful products can be reduced without eliminating competition.

Goal conflicts in political decisionmaking: a survey of municipality politicians' views of road pricing

An ongoing discussion concerns road-pricing schemes as measures to abate traffic congestion and air pollution in metropolitan areas. If such measures are to be effective, road-pricing fees must be set sufficiently high. However, municipalities are likely to have other goals besides reducing car use, such as upholding fairness among citizens and financial goals such as creating revenues. If conflicts prove to exist between different goals, road-pricing schemes are not likely to achieve the environmental goal. To investigate the degree to which these goal conflicts exist, members of the local governments in the three major metropolitan areas of Sweden responded to a survey questionnaire. In the questionnaire they rated a number of principles guiding the setting of road-pricing fees hypothesized to correspond to the three goals. The results showed that, for the political majority, the hypothesized goal conflicts existed in that no single goal was optimized. It is concluded that in particular fairness may prevent road pricing achieving the environmental goal.