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.
