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Green Goods: Are They Good or Bad News for the Environment? Evidence from a Laboratory Experiment on Impure Public Goods

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Abstract

Green goods such as recycled paper stationary or carbon-neutral flights provide increasingly popular examples of impure public goods. Motivated by theoretical treatments of green goods as a bundle of private and public characteristics in proportions fixed by the provider, we design an experiment with two linked treatments to test how the presence of impure public goods affects behaviour towards public good causes. We set parameters, such that from a standard economic perspective the presence of the impure public good is behaviourally irrelevant. In a treatment where the impure public good provides only small contributions to the public good, we observe that on aggregate pro-social behaviour is lower in the presence of the impure public good. On the contrary, in the treatment where the impure public good is more generous towards the public good component at the expense of private earnings, individuals are unaffected in their behaviour. We observe that impure public goods, that are theoretically irrelevant and are mostly self-interested, may hinder pro-social behaviour and look for explanations in social psychology, such as the phenomenon of thoughtful anchoring, motivated reasoning and reluctant altruism. The results from this experiment question the role of green goods in enhancing environmentally friendly behaviours.

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Notes

  1. There are alternative classifications for these types of goods such as joint products (Cornes and Sandler 1984) and hybrid bundles (Frackenpohl and Pönitzsch 2013).

  2. For more information on red goods and the Global Fund, refer to the official website: http://www.joinred.com/Learn/AboutRed/FAQs.aspx.

  3. Our paper follows the methodological options made in experiments motivated by environmental phenomena but whose design is stripped down of potential confounding effects, allowing the experiment to identify the key features of the problem, without actually introducing environmental concerns in the design. For example Cason and Gangadharan (2002) explore the issue of eco-labelling of green goods in an abstract experiment where preferences for the green good are induced via the payoff parameters. Vogt (2014) uses an abstract setting that does not mention conservation or the environment while Hansen et al. (2014) make inferences about water markets but use abstract coupons in the actual experiment. We readily acknowledge that there may be external validity issues in going from the lab to the real world but in line with these and other papers we argue that lessons can be learnt about how people respond to impure public goods generally from our specific case.

  4. The pioneering models by Kotchen (2005, 2006) understandably focus on the case with efficient impure goods. On the contrary, we emphasize a theoretically irrelevant case, but one that is potentially behaviourally relevant, namely inefficient (and neutral) impure goods. This is justified by the fact that we observe in reality inefficient bundling of characteristics, which are nonetheless accepted by consumers. In a similar vein, Bateman et al. (2008) explore decoy effects of dominated and asymmetrically dominated options, which are from a theoretical perspective also irrelevant for behaviour, but prove to be meaningful.

  5. Munro and Valente (2009) contains a fuller description of the underlying model.

  6. In this article we use the term altruistic behaviour to refer to the case where contributions are made to the public good. In the literature there are specific preference configurations involving public goods, which may not be referred to as altruistic preferences. For example, Andreoni (1990) includes the total supply of the public good, the individual contribution or both as utility arguments, and in these cases his preferences taxonomy is respectively purely altruistic, purely egoistic and impure altruistic. Also, the public good may enter the utility function in comparison to the contribution of others as in the case of Hollander (1990). Furthermore, in our experiment, because the public good contributions are donations to a student welfare charity, it is possible that donors are motivated partly by the prospect of potential private benefits. Having said that, our aim is not to discern between different explanations for public good contributions but to explore the behaviour itself, i.e. the private provision of public goods (which we will refer to also as altruistic behaviour).

  7. For example, impure goods such as charity Christmas postcards are often more expensive than equivalent conventional cards and the charitable differential may be less than the mark-up in price. In the UK, the Charities Advisory Trust (2012) publishes a list of charity Christmas cards and the respective contribution to the designated charity and alerts to the variability in charity contributions by retailer and to the low amounts being donated in reality.

  8. The consumption of these goods is often done in public and, as such, allows consumers to show their ethical behaviour in a rather conspicuous way. Several empirical studies have addressed the role social image plays in ethical consumption (for example Friedrichsen and Engelmann (2013) using economic experiments, Carlsson et al. (2010) and Griskevicius et al. (2010) using hypothetical questionnaires). We have however chosen to disregard these (and other) features of impure goods and focus on a private decision done anonymously so as to establish a benchmark in terms of the effects of the impure good on behaviour.

  9. A contribution to a student charity may also be motivated by the small probability that a donor may benefit from the fund in the future, This kind of motivation may also be present for real world goods, such as medical research charities or environmental charities, if the donor expects to benefit directly (through an illness cure or better air quality, for example). For most potential subjects the very small chance of help from the fund would mean that the optimal donation out of self-interest would be zero. If a self-regarding motivation is present, it will show up in the level of contributions rather than in treatment differences as long as there is no difference in the choice set between two treatments.

  10. The popular random selection mechanism has been criticized in the literature (for example Holt 1986) but, several subsequent studies have shown that subjects appear to treat each task as separate and that the method can be validly used for individual choice problems (Cubitt et al. 1998; Hey and Lee 2005a, b).

  11. One further advantage of multiple tasks is that it makes it harder for subjects to identify what it is the experimenter is demanding of them (Zizzo 2010).

  12. The other tasks are not reported here since they do not pertain to the research hypotheses.

  13. Treatment AIG was run after treatment SIG, so subjects were not randomly allocated between treatments. The Wilcoxon–Mann–Whitney rank sum test comparing tokens kept in each treatment for the baseline task (task BaseHi for treatment SIG and task BaseLo for treatment AIG) does not yield statistically significant differences (z\(\,=\,\)0.102, \(p=0.919\)).

  14. To allow for practice, but to avoid priming subjects, the hypothetical scenario had different parameters and conversion rate than the actual experiment and involved the participant and hypothetical individuals instead of a charity.

  15. Of the 66 participants who took part in treatment SIG, 9 required intervention by the experimenter. However, there were no significant differences in the distribution of behaviour in any of the reported tasks between subjects who made a mistake in the practice and those who did not (measured by the Wilcoxon-Mann-Whitney rank sum test, henceforth WMW test).

  16. We ran two order treatments, varying whether participants are first confronted with the baseline task (task BaseHi) or the task with impure good (task SelfHi), so as to ascertain whether results could be driven by order effects. Respectively, 29 and 37 subjects participate in each order treatment. There are no statistically significant differences in donations in the baseline task in both treatments (WMW test z\(\,=\,-\)0.669 \(p = 0.504\)) or in task SelfHi in both order treatments (WMW test z\(\,=0.013\), \(p=0.985\)). Also, there are no order treatment differences for the other tasks made by subjects in this experiment, and analysed here. Hence, the data for each task is pooled for the following analyses. The reported results for each test are the test statistic and the 2-tailed p value (p).

  17. Unless otherwise stated, the reported test results are the test statistic and the 2-tailed p value (p) for the Wilcoxon matched pairs signed-rank test (W test).

  18. We can model the donation generating process as a hurdle model, whereby participants choose first whether to donate or not, and if they decide to donate, on a second stage, they choose how much. Running both a Poisson and a negative binomial logit hurdle regression, we get similar results. The likelihood of clearing the hurdle is not affected by any of the task features included and in the negative binomial/poisson equation, the coefficient for the first task and for the presence of the impure good are statistically significant at the 1 % level. These regressions use the user-written Stata commands HNBLOGIT and HPLOGIT (Hilbe 2005a, b) with clustered standard errors by subject.

  19. The remaining tasks are not relevant for this paper.

  20. One possibility is that subjects view the altruistic impure good as unfair (for instance since it favours the charity) and thereby discount it. We thank a referee for this suggestion. This potential explanation is harder to square with the asymmetric response by individual subjects to the self-interested impure good.

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Acknowledgments

The authors would like to thank three anonymous referees, and in particular the editor, for thoughtful comments and suggestions. The authors also thank Dirk Engelmann for helpful comments, Claire Blackman for her help in recruiting subjects and conference attendees at EAERE 2008, IMEBE 2008 and WCERE 2010. Marieta Valente acknowledges the financial support of Fundação para a Ciência e a Tecnologia - FCT Portugal (Grant SFRH/ BD/ 19130/ 2004). Alistair Munro acknowledges the financial support of JSPS grant number 21530213.

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Authors and Affiliations

  1. National Graduate Institute for Policy Studies (GRIPS), 7-22-1 Roppongi, Minato-ku, Tokyo, 106-8677, Japan

    Alistair Munro

  2. Escola de Economia e Gestão and NIMA, University of Minho, 4710-057, Braga, Portugal

    Marieta Valente

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  1. Alistair Munro
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  2. Marieta Valente
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Correspondence to Marieta Valente.

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Munro, A., Valente, M. Green Goods: Are They Good or Bad News for the Environment? Evidence from a Laboratory Experiment on Impure Public Goods. Environ Resource Econ 65, 317–335 (2016). https://doi.org/10.1007/s10640-015-9898-9

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