TI Complexity in Economics Seminars

Speaker(s)
Paolo Zeppini (University of Bath, United Kingdom)
Date
Wednesday, 7 June 2017
Time
16:00-17:15
Venue
Tinbergen Institute Amsterdam, room 1.60AmsterdamNetherlands
Contact person(s)
Anita Kopányi-Peuker

We introduce the concept of sustainable lifestyles in a discrete choice model of consumption behaviour. Agents behave in a `selfish’ or a `pro-social’ way by choosing different degrees of internalisation of environmental damage from the consumption of an environmentally harmful good. Pro-social behaviour means lower consumption, and is rewarded with warm-glow. Moreover, agents’ decision is influenced by social norms, which endogenously depend on aggregate choices. The model is developed in a dynamic framework, allowing agents to switch behaviour. Results show that conventional measures limiting consumption at an individual level – like a tax – may increase consumption at the aggregate level. The model is extended in different directions. We introduce a crowding-out effect in social norms, which gives two alternative regimes with negative or positive feedback in decisions. Another extension looks at a state dependent warm-glow. Three scenarios are identified: for strong social norms positive feedback leads to multiple equilibria. For moderate social norms there is a unique equilibrium. For weak social norms, we obtain periodic dynamics of behaviours. In particular, more informed choices and lower variability across agents are `destabilising’, leading to periodic dynamics or multiple equilibria. A final extension looks at the effect of price expectations, with a market feedback.