The Political Economy of the Vote with the Wallet

Transcription

1 The Political Economy of the Vote with the Wallet Leonardo Becchetti Francesco Salustri University of Rome Tor Vergata Economics, Economic Policies and Sustainable Growth in the Wake of the Crisis Ancona, 8 10 September / 20

2 Introduction Motivation People are willing to pay more for products and services from companies committed to positive social and environmental impact Figure: The Nielsen Global Survey on Conscious Consumers. Governments have already implemented some mechanisms to enforce the vote with the wallet Feed-in tariffs Green consumption taxes 2 / 20

3 Introduction Research question How can regulators enforce the vote with the wallet to reach the best (Pareto optimal) outcome? Are the existing policies sustainable? 3 / 20

4 Introduction Goal of the paper We analyse four redistribution mechanisms that the government can implement in order to allow people to vote responsibly, thereby solving the inefficiency related to the game, and ultimately boosting firms to adopt more socially and environmentally sustainable policies Results It is possible to stimulate the production of (some specific forms of) public goods with any additional government expenditure All of the four redistribution mechanisms help mutual responsible voting to be enforced as a NE Some existing redistribution mechanisms (ie, FITs) should adopt the proportional cost mechanisms (rather than the existing one) 4 / 20

5 Introduction Goal of the paper We analyse four redistribution mechanisms that the government can implement in order to allow people to vote responsibly, thereby solving the inefficiency related to the game, and ultimately boosting firms to adopt more socially and environmentally sustainable policies Results It is possible to stimulate the production of (some specific forms of) public goods with any additional government expenditure All of the four redistribution mechanisms help mutual responsible voting to be enforced as a NE Some existing redistribution mechanisms (ie, FITs) should adopt the proportional cost mechanisms (rather than the existing one) 4 / 20

6 Literature review Ostrom (2000): a new set of rules causes a new collective dilemma among principals Besley & Ghatak (2007): firms adopting CSR will produce public good below the first-best level Bergstrom et al (1986): a larger redistribution of wealth will change the set of contributors and thereby the equilibrium provision of the public good 5 / 20

7 The model 6 / 20

8 The Model The vote with the wallet game n citizens two strategies: choose the responsible (VR) or the conventional (VC) product { j+1 Utility: U i (S i, σ(s i )) = n b + a c if (S i, σ(s i )) = (VR, j) j n b if (S i, σ(s i )) = (VC, j) j = no. cooperators, b = positive externality, a = warm glow, c = cost differential The game is repeated T periods Coalitions of responsible buyers might increase the value of free-riding 7 / 20

9 The PD interval The game is a Prisoner Dilemma (PD) c ( 1 n b + a, b + a) Figure: The Prisoner s Dilemma interval Low cost Intermediate cost High cost NE (vr,vr) NE (vc,vc) Prisoner s dilemma NE (vc,vc) 1 n b + a b + a c 8 / 20

10 The Redistribution Mechanism The government chooses for each citizen i at each period t a parameter θ i (t) Θ called transfer of player i, where New utility function Θ := {θ i (t) R : n θ i (t) = 0, t = 0,..., T } i=1 F i (S i, σ(s i )) := U i (S i, σ(s i )) + θ i Redistribution mechanism works through taxes (subsidies) levied (provided) by the government to consumption of both private and public good components Four mechanisms: proportional free-rider gain, proportional cost, fixed tax, subsidy. 9 / 20

11 Proportional free-rider gain mechanism, Γ p The government equally redistributes a share of each free rider s gain to each responsible buyer { θ i (n j 1)q 1 = n b if (S i, σ(s i )) = (VR, j) q j n b if (S i, σ(s i )) = (VC, j) Proposition Mutual responsible voting is a NE of Γ p if and only if c nq+1 q n b + a 10 / 20

12 Proportional free-rider gain mechanism 1 Figure: Effective tax rates and the cost of voting with the wallet. q (tax rate) 0,8 0,6 0,4 0,2 c (extra cost) a 1 n b + a b + a 11 / 20

13 Proportional cost mechanism, Γ pc The government taxes the conventional buyers for a portion of the extra-cost c paid by the responsible buyers { n j 1 θ i j+1 = qc if (S i, σ(s i )) = (VR, j) qc if (S i, σ(s i )) = (VC, j) Proposition Mutual responsible voting is a NE of Γ pc if and only if q 1 1 n b+a c 12 / 20

14 Proportional cost mechanism 1 Figure: Effective tax rates and the cost of buying responsibly. q (tax rate) 0,8 0,6 0,4 0,2 c (extra cost) a 1 n b + a b + a 13 / 20

15 Fixed tax mechanism, Γ f The government levies a fixed tax k (0, + ) on each conventional buyer and equally redistributes the total amount to each responsible buyer { θ i k n j 1 j+1 if (S i, σ(s i )) = (VR, j) = k if (S i, σ(s i )) = (VC, j) Proposition Mutual responsible voting is a NE of Γ f if and only if k 1 n b + a c 14 / 20

16 Fixed tax mechanism Figure: Changes in the intervals of equilibria along the segment of c values in the multiplayer game with the fixed tax mechanism Low cost Intermediate cost High cost NE (vr,vr) NE (vc,vc) Prisoner s dilemma NE (vc,vc) 1 b + a 1 b + a + k n n b + a c 15 / 20

17 Subsidy mechanism, Γ s The government provides a fixed subsidy to responsible buyers, and the subsidy is financed by the conventional buyers. We assume the government has an endowment K { K θ i n if (S i, σ(s i )) = (VR, j) = K n j n j if (S i, σ(s i )) = (VC, j) Proposition The mutual responsible voting is a NE of Γ s if and only if c 1 n b + a + K 16 / 20

18 Subsidy mechanism Figure: Changes in the intervals of equilibria along the segment of c values in the multiplayer game with the subsidy mechanism Low cost Intermediate cost High cost NE (vr,vr) NE (vc,vc) Prisoner s dilemma NE (vc,vc) 1 b + a 1 b + a + K n n b + a c 17 / 20

19 Discussion: the Feed-in-tariffs The feed-in-tariff (FIT) scheme aims at the promotion of energy production from photovoltaic system. The mechanism provides subsidies to renewable energy consumers and charges the cost on the rest of taxpayers. Implemented in 63 countries worldwide and are regarded as one of the most effective measures to promote the development of renewable energy sources (Couture and Gagnon, 2010; Klein et al., 2008; Mendonça, 2007; European Commission, 2008; REN21, 2009). A non-discriminatory guaranteed subsidised price for a given period of time (long-term contracts) renewable generators, such as homeowners, business owners, and farmers. 18 / 20

20 Discussion Feed-in tariff may be related to the subsidy mechanism Γ s (the only mechanism which requires a government endowment!) If all individuals would adopt the Feed-in tariff, the government would need more money to finance it The proportional cost mechanism has two main advantages: > It is based on clear paramenter (the cost c) > For any level of c there exist an optimal tax rate. 19 / 20

21 Conclusion It is possible to stimulate the production of (some specific forms of) public goods with any additional government expenditure All of the four redistribution mechanisms have the property of extending significantly the parametric interval in which mutual responsible voting can be enforced as a NE Some existing redistribution mechanisms should adopt the proportional cost mechanisms 20 / 20