Behavioral Sources of the Demand for Carbon Offsets: An Experimental Study

44 Pages Posted: 6 Mar 2017 Last revised: 31 Jul 2018

See all articles by Kai-Uwe Kuhn

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

Neslihan Uler

University of Maryland - College Park

Date Written: May 28, 2018

Abstract

Voluntary carbon offset schemes have sprung up in the last decade offering individuals opportunities to neutralize their own carbon footprint. These schemes strongly appeal to the personal responsibility of individuals in reducing the carbon emissions they cause. In this paper we report on a controlled laboratory experiment to better understand the behavioral motivations driving the purchase of carbon offsets, i.e., payments towards the reduction of damages to the environment. We show that the opportunity to offset damages does not affect the total damages created by the individuals when individuals trade in competitive markets. At the same time, we find a stable demand for carbon offsets when the price is sufficiently low. Therefore, introduction of carbon offsets increases efficiency by eliminating some of the damages ex-post. Behavior, however, is very heterogeneous. Individuals with a high (low) personal-responsibility index increase their offset purchases as their own damage (total damages) increases, but do not condition their offsetting behavior on the total damages (own damages) created.

Keywords: carbon offsets, public goods provision, externalities, double auction, laboratory experiment

JEL Classification: C92, H20, H41

Suggested Citation

Kuhn, Kai-Uwe and Uler, Neslihan, Behavioral Sources of the Demand for Carbon Offsets: An Experimental Study (May 28, 2018). Available at SSRN: https://ssrn.com/abstract=2926615 or http://dx.doi.org/10.2139/ssrn.2926615

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Neslihan Uler (Contact Author)

University of Maryland - College Park ( email )

College Park, MD 20742
United States

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