Essays in Behavioral Economics and Environmental Policy
                          by
                      Steven Eric Sexton
               Adissertation submitted in partial satisfaction of the
                    requirements for the degree of
                      Doctor of Philosophy
                          in
                  Agricultural and Resource Economics
                         in the
                       Graduate Division
                         of the
                   University of California, Berkeley
                      Committee in charge:
                   Professor David Zilberman, Chair
                   Professor Maximilian Auffhammer
                     Professor Enrico Moretti
                         Fall 2012
            Essays in Behavioral Economics and Environmental Policy
                       Copyright 2012
                          by
                      Steven Eric Sexton
                                             1
                        Abstract
              Essays in Behavioral Economics and Environmental Policy
                          by
                      Steven Eric Sexton
             Doctor of Philosophy in Agricultural and Resource Economics
                   University of California, Berkeley
                   Professor David Zilberman, Chair
       Social planners have long relied upon non-coercive interventions in order to achieve social
       welfare improvements that are not obtained by markets or direct policy. Such policies are
       perhaps nowhere more relevant and common than in environmental economics. Environ-
       mental goods and services are typically not traded in markets because of the difficulties of
       property rights assignment. And yet efforts to create markets or correct market failures
       by coercive policy are fraught with controversy. Thus, in addition to coercive mecha-
       nisms, social planners use information provision campaigns, appeals for cooperation, and
       "nudges" to improve the efficiency of environmental resource allocations. Non-coercive
       interventions have grown in popularity among social planners as behavioral economics
       has gained acceptance within the mainstream of the field. Indeed, such policies typically
       affect market outcomes and achieve environmental goals only insofar as they can exploit
       or correct decision making that deviates from standard theory.
         In this dissertation, agent behavior is analyzed to assess the potential of non-coercive
       interventions to achieve socially preferred environmental outcomes. In a first essay, the
       concept of conspicuous conservation is introduced as a modern variant of conspicuous
       consumption that affords status for displays of austerity meant to signal environmental
       preferences rather than displays of ostentation meant to signal wealth. I identify con-
       spicuous conservation in the automobile market and estimate a willingness to pay up to
       several thousand dollars for the "green" signal transmitted by ownership of the Toyota
       Prius.
         In a second essay, I demonstrate how automatic bill payment programs can induce ex-
       cessive consumption of goods and services by boundedly rational consumers who exhibit
       inattention to prices. As automatic payment programs have spread throughout indus-
       tries characterized by recurring payments, from utility and telecommunication services
       to insurance and loan markets, this essay is the first to consider their implications for
       consumer demand and welfare. It is also the first to test empirically whether enrollment
       in such programs increases demand, as price salience theory suggests. It is shown that
       residential electricity consumption increases on average 2-4.5
         Afinal essay examines the extent to which free transit fares and appeals for car-trip
                                             2
       avoidance reduce car pollution on smoggy days. With data on freeway traffic volumes
       and transit ridership, public appeals for cooperation are shown to have no significant
       effect on car trip demand. Free transit fares, however, do have a significant effect on car
       trip demand. But the effect is perverse in that it generates an increase in car trips and
       related pollution. Free fares also increase transit ridership. These results suggest that
       free transit rides do not induce motorists to substitute to transit, but instead subsidize
       regular transit rides and additional trips. Appeals for cooperation also have no affect on
       carpooling behavior.
         Viewed in their totality, these essays communicate the importance of behavioral theo-
       ries in formulating environmental policies and predicting agents’ responses to such policies.
       Policies formulated without due regard for agents’ bounded rationality and multifaceted
       motivations are doomed to unintended consequeces. However, recognition of these behav-
       ioral responses and their incorporation in policy design can result in improved environ-
       mental outcomes and efficient policies.