Abstract
In this paper we summarise some of our recent work on consumer behaviour, drawing on recent developments in behavioural economics, particularly linked to sociology as much as psychology, in which consumers are embedded in a social context, so their behaviour is shaped by their interactions with other consumers. For the purpose of this paper we also allow consumption to cause environmental damage. Analysing the social context of consumption naturally lends itself to the use of game theoretic tools. We shall be concerned with two ways in which social interactions affect consumer preferences and behaviour: socially-embedded preferences, where the behaviour of other consumers affect an individual’s preferences and hence consumption (we consider two examples: conspicuous consumption and consumption norms) and socially-directed preferences where people display altruistic behaviour. Our aim is to show that building links between sociological and behavioural economic approaches to the study of consumer behaviour can lead to significant and surprising implications for conventional economic analysis and policy prescriptions, especially with respect to environmental policy.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Sobel (2005) is an excellent review of models of interdependent preferences that best explain behaviour in non-market settings, as in laboratory experiments of the ‘ultimatum game’.
Another illustration of our interest in this topic derives from a conference on Sustainable Consumption: Multi-Disciplinary Perspectives, held by the Sustainable Consumption Institute at University of Manchester in 2012. The proceedings (Southerton and Ulph 2014) include an Introductory chapter which summarises the different disciplinary approaches to consumption.
Simmel’s (1903) classic essay argues that a fundamental characteristic of modernity is that individual preference can only be understood—or recognized—through the degree of similarity or difference from the preferences of others.
As Dasgupta (2014) notes, provided the production structure linking inputs of commodities and time to outputs of higher level activities remains constant there is little to be lost by focussing on acquisition of goods.
It is worth noting that consumption norms are not entirely elective as, even in cases where an individual wishes to belong to a group, belonging requires that members of the group recognize and accept that consumption norms are being performed competently (Warde 1994).
For example, conspicuous consumption might be more pertinent to young people, perhaps because their own preferences have not been fully developed.
This is particularly true in our analysis of consumption norms.
In common with much of the economics literature we do not explain which group constitutes the reference group.
Here, and throughout the paper we use the notation \(u_k =\frac{\partial u}{\partial c_k };\quad d_k =\frac{\partial d}{\partial M\bar{c} _k }\).
For expositional purposes the precise way in which the various factors are combined to determine well-being may vary from section to section. However they are formally equivalent to the specification given in (9).
Throughout the paper we presume that this is sufficiently low that well-being overall is positive.
Here, and throughout the paper we use the notation \(h_k =\frac{\partial h}{\partial r_k }\).
As noted above, in the case of conformist behaviour, individuals must necessarily be different. In this case there may be multiple consumption norms, but nevertheless each satisfies the condition that it is the average consumption of those choosing to adhere to that norm.
This has important implications in the case of conformist consumption where individuals are necessarily different. Consequently while individual consumption behaviour might be influenced by a norm, it need not be identical to it, and so the social optimum has to be constructed with some care.
Sometimes referred to as “Keeping up with the Joneses”.
The Veblen effect has also been invoked to help explain the Easterlin Paradox (1974, 2001) whereby average life satisfaction (as measured by surveys of happiness) in advanced economies has stayed constant over the past few decades, despite rising levels of per capita income. This is consistent with the ‘Red Queen effect’ whereby everybody increases consumption to try to do better than their peers, but in the end this is self-defeating because everyone’s consumption increases.
Cowan et al. (1997) present a simple model of the dynamics of how consumption might evolve as people seek to make their consumption more like those of an aspiration group and differentiate it from those in a distinctive group. But their model does not allow for welfare analysis.
For the purposes of this section there is nothing to be gained by allowing \(M\) to be a variable which could take values greater than 1.
We could think of one of the goods being leisure and so embed a model of labour supply but for the purposes of this section we do not explicitly identify leisure.
See for example Boskin and Sheshinski (1978) where individual well-being depends on average consumption, but average consumption has no effect on individual labour supply.
By \(h_k (1)\) we mean the partial derivative of the function \(h\) w.r.t. its \(k-\)th argument, evaluated at the vector \(r\) for which every element is 1.
The optimal policy will also involve a lump-sum transfer to re-distribute the tax revenue raised from the Pigovian and Veblen taxes back to households.
That competitive consumption may well also be resource intensive (conspicuous consumption in automobiles and air travel) should not surprise. The gap between the market price and social worth of environmental resources has meant that technological innovations are biased against nature. Entrepreneurs, understandably, seek innovations that economize on expensive factors of production, not those that are cheap. It should be no surprise, then, that modern technology is rapacious in its use of nature’s services.
Arrow and Dasgupta consider a range of functional forms and parameter values for which Corollary 3 obtains. The Cobb–Douglas functional form we consider is just one such special case.
The restriction on the parameter\(\eta \) is required to ensure that the damage function is convex.
Notice that in both the equilibrium and optimum \(r_1 =r_2 =1\Rightarrow H=G\).
The most influential sociological theories of consumption—especially Bourdieu’s (1984) account of taste and distinction and Bauman’s (1990) account of neo-tribal lifestyles—both present social norms and belonging as the fundamental mechanisms underpinning its contemporary social patterning (see Southerton (2002) for a full discussion). In our use of the term consumption norms should be interpreted as a subset of the much broader category of social norms which can affect behaviour.
See Bennett et al. (2009) for a comprehensive analysis of the clustering of consumption activities based on overlapping cultural interests in the UK.
This is linked to notions of social capital. It is important to distinguish between group membership developing greater trust between insiders—a positive social benefit—and developing a greater distrust of outsiders—a reduction in social benefit (see Putnam (2000) and Dasgupta (2000) for a recognition that social capital may have negative as well as positive effects). Hargreaves-Heap and Zizzo (2009) construct a measure to test this distinction, and in their experiments they find it is the negative effect which predominates.
Hargreaves-Heap and Zizzo (2009) also develop a test to measure this psychological benefit of belonging to a group; they find that it balances out the negative effect of group membership noted in the previous footnote.
As we did in Sect. 3.
We need to interpret the concept of a good acting as a consumption norm broadly, to encompass not just the characteristics of the good, but also the practices in which the good is deployed; so hosting a dinner party involves more than just the food and wine served but how it is served, the conversation that takes place etc.
We note three points about the way we formulate the concept of the utility loss from not adhering strictly to the norm. First, since good 1 is both a norm good and emits environmental damage a referee asked why a consumer whose consumption was below the norm would want to increase consumption and hence emissions. We assume that the issue of a consumption norm is distinct from the issue of environmental damage caused by good 1, and we make the conventional assumption (see Sect. 2) that the consumer believes the impact of her consumption on environmental damages is negligible. Second the referee asked why the distance between actual consumption and the norm should matter rather than wanting to hit the norm exactly. We assume that the norm does not a invoke ‘taboo trade-off’, i.e. it has such a powerful moral value that individuals would feel moral outrage if faced with such a trade-off (see Tetlock 2003; Croson and Treich 2014). Our formulation is consistent with Bernheim (1994) . Third, note if we had expressed the cost of deviating from the norm in the more standard form as \(0.5\gamma (c-c^*)^{2}\) then the first-order condition for optimal consumption would be: \(A-c-p-\gamma (c-c^*)=0\) so if \(c=c^*\) then \(c^*=c^{m}(p,A)\) so consumers will only consume the norm level of consumption when the norm equals their Marshallian demand, and so is what they would have chosen to consume had they not adhered to a norm.
Equivalently we could assume that the government has received revised and higher estimates of damage costs.
Of course if \(\alpha >(A_H -A_L )\) then it is still possible that the norm lies between the two Marshallian demands and so the effects just described still apply.
Such a calculation might be made particularly in the context of a global mixed pollutant such as \(\hbox {CO}_{2}\) emissions that is one of the drivers of climate change.
The term ‘intrinsic motivation’ is frequently used to describe the concept of warm-glow, where individuals derive a benefit from pro-social behaviour without consideration of its impact—see, for example, Clark et al. (2003), Deci (1971) and Palfrey and Prisbrey (1997). On the other hand a concern for self-image or reputation, as well as different types of altruism, can be thought of as extrinsic motivation since they do involve a consideration of the impact of the individual’s choice.
See Archibald and Donaldson (1976).
In fact Johansson (1997) derives the socially optimal tax on an externality for all four types of altruism described above relative to the socially optimal tax level under standard behaviour. He shows that depending on the type of altruism analysed, the socially optimal tax on the externality can be higher, lower, or equal to the socially optimal tax without altruism.
For simplicity this heterogeneity in the population will play no role initially and everyone will be effectively identical.
This simplifying assumption is made in order to remove both effects from behaviour and any concerns about income inequality from the welfare analysis.
Formally, we assume: \({\varphi }'(z)>0;\quad {\varphi }''(z)<0\).
Formally , we assume, \(\forall E>0\quad {d}'(E)>0;\quad {d}''(E)\ge 0\).
It can be shown that all the conclusions are unaffected if \(\alpha \) varies across the population.
See Johansson (1997) for a discussion of such a restriction.
The analysis that follows also applies if the tax is sub-optimally high.
References
Akerlof G, Kranton R (2000) Economics and identity. Q J Econ 115(3):715–753
Allcott H (2011) Social norms and energy conservation. J Pub Econ 95:1082–1095
Andreoni J (1988) Privately provided public goods in a large economy: the limits of altruism. J Pub Econ 35:57–73
Andreoni J (1990) Impure altruism and donations to public goods: a theory of warm-glow giving. Econ J 100(401):464–477
Archibald G, Donaldson D (1976) Non-paternalism and the basic theorems of welfare economics. Can J Econ 9(3):492–507
Arrow K, Dasgupta P (2009) Conspicuous consumption, inconspicuous leisure. Econ J 119:F497–F516
Bauman Z (1988) Freedom. University of Minnesota Press, Minnesota
Bauman Z (1990) Thinking sociologically. Blackwell, Oxford
Becker G (1974) A theory of social interactions. In: Durlauf SN, Blume LE (eds). J Polit Econ 82(6):1063–1093
Becker G (1981) Altruism in the family and selfishness in the market place. Economica 48(189):1–15
Bénabou R, Tirole J (2006) Incentives and prosocial behavior. Am Econ Rev 96(5):1652–1678
Bennett T, Savage M, Silva E, Warde A, Gayo-Cal M, Wright D (2009) Culture, class, distinction. Routledge, London
Bernheim D (1994) A theory of conformity. J Polit Econ 102(5):841–877
Bernheim D, Rangel A (2007) Towards choice-theoretic foundations for behavioral welfare economics. Am Econ Rev 97(2):464–470
Boskin M, Sheshinski E (1978) Optimal redistributive taxation when individual welfare depends upon relative income. Q J Econ 92:589–602
Bourdieu P (1984) Distinction: a social critique of the judgement of taste. Routledge Kegan Paul, London
Bourdieu P (1990) The logic of practice. Polity Press, Cambridge
Brekke K, Kverndokk S, Nyborg K (2003) An economic model of moral motivation. J Pub Econ 87(9–10):1967–1983
Bucholz W, Falkinger J, Rubbelke D (2012) Non-governmental public norm enforcement in large societies as a two-stage game of voluntary public good provision. ANU working paper in economics and econometrics, 566
Camerer C, Loewenstein G, Rabin M (2004) Behavioral economics. Princeton University Press, Ann Arbor
Clark C, Kotchen M, Moore M (2003) Internal and external influences on pro-environmental behaviour: participation in a green electricity program. J Environ Psychol 23:237–246
Copeland B, Taylor S (2005) Trade and environment: theory and evidence. Princeton University Press, Ann Arbor
Cowan R, Cowan W, Swann P (1997) A model of demand with interactions among consumers. Int J Ind Organ 15:711–732
Croson R, Treich N (2014) Behavioral environmental economics: promises and challenges. Environ Resour Econ 58:335–351
Dasgupta P (2000) Economic progress and the idea of social capital. In: Dasgupta P, Serageldin I (eds) Social capital: a multi-faceted perspective. The World Bank, Washington, DC, pp 325–424
Dasgupta P (2014) Sustainability and the determinants of personal consumption. In: Southerton D, Ulph A (eds) Sustainable consumption: multi-disciplinary perspectives. Essays in honour of professor Sir Partha Dasgupta. Oxford University Press, Oxford Ch 2
Daube M, Ulph D (2014) Moral behaviour, altruism and environmental policy. Environ Resour Econ. doi:10.1007/s10640-014-9836-2
Deci E (1971) Effects of externally mediated rewards on intrinsic motivation. J Pers Soc Psychol 18:105–115
Demarque C, Charalambides L, Hilton D, Waroquier L (2014) Fostering sustainable consumption: the use of descriptive norms to promote a minority behavior ina realistic shopping environment. Working paper, University of Toulouse
Douglas M, Isherwood B (1979) The world of goods: towards an anthropology of consumption. Penguin, Harmondsworth
Easterlin R (1974) Does economic growth improve the human lot? Some empirical evidence. In: David P, Reder M (eds) Nations and households in economic growth: essays in honor of Moses Abramowitz. Academic Press, New York
Easterlin R (2001) Income and happiness: toward a unified theory. Econ J 111:465–484
Ellingsen T, Johannesson M (2008) Pride and prejudice: the human side of incentive theory. Am Econ Rev 98(3):990–1008
Endres A (1997) Negotiating a climate convention: the role of prices and quantities. Int Rev Law Econ 17(1):147–156
Endres A, Finus M (1998) Re-negotiation-proof equilibria in a bargaining game over global emissions: Does the instrument framework matter? In: Hanley N, Folmer M (eds) Game theory and the environment. Edward Elgar, Cheltenham, pp 135–164
Endres A, Finus M (1999) International environmental agreements: How the policy instrument affects equilibrium emissions and welfare. J Inst Theor Econ 155(3):527–550
Endres A, Finus M (2002) Quptas may beat taxes in a global emissions game. Int Tax Publ Finance 9:687–707
Endres A, Ohl C (2002) Introducing ‘co-operative push’: How inefficient environmental policy (sometimes) protects the global commons better. Publ Choice 111:285–302
Endres A, Ohl C (2003) International environmental co-operation with risk aversion. Int J Sustain Dev 6(3):378–392
Frank R (1985) Choosing the right pond: human behavior and the quest for status. Oxford University Press, New York
Frey B, Meier S (2004) Social Comparisons and pro-social behaviour: testing conditional cooperation in a field experiment. Am Econ Rev 94(5):1717–1722
Gerber A, Rogers T (2009) Descriptive social norms and motivation to vote: everybody’s voting and so should you. J Polit 71:1–14
Gough I, Abdallah S, Johnson V, Ryan-Collins J, Smith C (2012) The distribution of total greenhouse gas emissions by households in the UK and some implications for social policy, CASE/152. STICERD, LSE
Granovetter M (1978) Threshold models of collective behaviour. Am J Sociol 83(6):1420–1443
Hargreaves-Heap S (2013) Social influences on behaviour. In: Mehta J (ed) Behavioural economics in competition and consumer policy. Report from ESRC Centre for Competition Policy, University of East Anglia
Hargreaves-Heap S, Zizzo D (2009) The value of groups. Am Econ Rev 99:295–323
Hilton D, Charalambides L, Demarque C, Waroquier L, Raux C (2014a) A tax can nudge: the impact of an environmentally motivated bonus/malus fiscal system on transport preferences. J Econ Psychol 42:17–27
Hilton D, Treich N, Lazzara G, Tendil P (2014b) Designing effective nudges that satisfy ethical and legal constraints: the case of environmentall responsible behaviour. mimeo, The University of Toulouse
IPCC (2014) Social, economic and ethical concepts and methods. Report of Working Group III
Jenkins R (1996) Social identity. Routledge, London
Johansson O (1997) Optimal Pigovian taxes under altruism. Land Econ 73(3):297–308
Kennett DA (1980) Altruism and economic behavior, I: developments in the theory of public and private redistribution. Am J Econ Sociol 39(2):183–198
Lancaster K (1966) A new approach to consumer theory. J Pol Econ 74:132–157
Mailath G, Samuelson L (2006) Repeated games and reputations: long term relationships. Oxford University Press, New York
Nyborg K, Howarth RB, Brekke KA (2006) Green consumers and public policy: on socially contingent moral motivation. Resour Energy Econ 28(4):351–366
Palfrey T, Prisbrey J (1997) Anomalous behavior in public goods experiments: How much and why? Am Econ Rev 87(5):829–846
Putnam R (2000) Bowling alone: the collapse and revival of American community. Simon and Schuster, New York
Rauscher M (1997) International trade, factor movements and the environment. Oxford University Press, Oxford
Schor J (1998) The overspent American. Basic Books, New York
Schor J (2010) Plenitude: the new economics of true wealth. Penguin Press, New York
Simmel G (1903) The metropolis and mental life. In: Bridge G, Watson S (eds) 2002, The Blackwell City Reader, Oxford and Malden. Wiley-Blackwell, Malden
Sobel J (2005) Interdependent preferences and reciprocity. J Econ Lit 43(2):392–436
Southerton D (2002) Boundaries of ‘us’ and ‘them’: class, mobility and identification in a new town. Sociology 36(1):171–193
Southerton D, Ulph A (2014) Introduction. Essays in honour of professor Sir Partha Dasgupta. In: Southerton D, Ulph A (eds) Sustainable consumption: multi-disciplinary perspectives. Oxford University Press, Oxford Ch 1
Tan J, Bolle F (2007) Team competition and the public goods game. Econ Lett 96(1):133–139
Tetlock P (2003) Thinking the unthinkable: sacred values and taboo cognitions. Trends in cognitive science 7:320–324
Tirole J (2002) Rational irrationality: some economics of self management. Eur Econ Rev 46:633–655
Ulph A, Ulph D (2007) Climate change—environmental and technology policies in a strategic context. Environ Resour Econ 37:159–180
Ulph A, Ulph D (2014) Consumption decisions when people value conformity. Working paper 1414, School of Economics & Finance, University of St Andrews
Ulph D (2014) Keeping up with the Jones: Who loses out? mimeo. School of Economics & Finance, University of St Andrews
Veblen T (1924) The theory of the leisure class: an economic study of institutions. George, Allen and Unwin, London
Warde A (1994) Consumption, identity-formation and uncertainty. Sociology 28(4):877–898
Warde A (1997) Consumption, taste and social change. In: Warde A (ed) Consumption, food and taste: culinary antinomies and commodity culture. Sage, London, pp 7–21
Warde A, Southerton D (2012) The habits of consumption. Open Access Book Series of the College of Advanced Studies, Helsinki
Weber M (1980 [1920]) General economic history. Transaction Books, New Brunswick
Author information
Authors and Affiliations
Corresponding author
Additional information
We are grateful to the editor, Michael Finus, and two referees for their very helpful comments on earlier versions of this paper.
Rights and permissions
About this article
Cite this article
Dasgupta, P., Southerton, D., Ulph, A. et al. Consumer Behaviour with Environmental and Social Externalities: Implications for Analysis and Policy. Environ Resource Econ 65, 191–226 (2016). https://doi.org/10.1007/s10640-015-9911-3
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10640-015-9911-3
Keywords
- Consumer behaviour
- Social context
- Environmental policy
- Game theory
- Competitive consumption
- Consumption norms
- Altruism
- Moral behaviour
- Kantian calculus