More Information Is Not Always Better: The Case of Voluntary Provision of Environmental Quality

By Owen, Ann L.; Videras, Julio et al. | Economic Inquiry, July 2012 | Go to article overview

More Information Is Not Always Better: The Case of Voluntary Provision of Environmental Quality


Owen, Ann L., Videras, Julio, Wu, Stephen, Economic Inquiry


I. INTRODUCTION

Policymakers and activists have dedicated a great amount of effort to inform the public about the causes and consequences of climate change and ways households can curb their emissions of greenhouse gases. (1) Solutions that rely on voluntary efforts need to overcome incentives to free-ride and informational problems: while individuals may engage in multiple pro-environmental behaviors, each activity entails different levels of monetary and time commitment as well as different impacts on the environment. (2) While one may be tempted to conclude that more accurate information about the effectiveness of various activities in reducing greenhouse gases would improve environmental quality, our work demonstrates that this may not necessarily be true. In short, we find that many people tend to overestimate the impact of their own individual behaviors and that the frequency with which they engage in these behaviors increases with their estimate of effectiveness. A consequence of our results is that more accurate information that reduces individuals' assessments of the impact may actually lead to fewer voluntary pro-environmental contributions.

The role of beliefs and the impact of information on individual decisions has been a prominent theme in the economics literature, with most studies concluding that more accurate information improves economic outcomes.

In the context of financial markets, La Porta, Lopez-de-Silanes, and Shleifer (2006) show that securities laws mandating disclosure benefit stock markets, while the results in the study by Greenstone, Oyer, and Vissing-Jorensen (2006) suggest that mandatory disclosure laws encourage firm management to focus on maximizing shareholder value. Accurate information is also featured in several studies of health behavior and the demand for medical care. For example, results in the work by Kenkel (1990) suggest that poorly informed consumers underestimate the value of medical care, while Kenkel (1991) shows the importance of education in encouraging people to choose healthier life styles. In a similar vein, Avery et al. (2007) show that the advertising of smoking cessation products increases the likelihood of success for those

who attempt to quit smoking. Finally, Jin and Leslie (2003) demonstrate that grading hygiene quality at restaurants not only caused consumers to become sensitive to changes in restaurant hygiene quality but it also was associated with restaurant managers making hygiene quality improvements.

The effects of information on consumer and firm behavior are also investigated specifically in the environmental literature. For example, Konar and Cohen (1997) and Khanna, Quimio, and Bojilova (1998) show that disclosure about toxic chemical releases negatively affects firms' stock prices and that firms with large declines in stock prices reduce emissions. In a more recent study, Delmas, Monetes-Sancho, and Shimshack (2010) find that mandatory disclosure of fuel mix of electric utilities increased the proportion of clean fuels used by these firms. While these studies focus more on firm behavior, Shimshack, Ward, and Beatty (2007) focus on consumer behavior and find that risk warnings about mercury in canned fish were effective among college-educated individuals and among those who purchased newspapers and magazines.

While our work is broadly related to the works cited earlier, we contribute to this literature by specifically examining the effect of beliefs about effectiveness of effort on the voluntary provision of public goods, environmental quality in particular. This decision is different from those described because public goods are typically underprovided by the voluntary actions of individuals. However, the possibility that individuals may be making this decision without accurate beliefs adds a new twist to the problem and, depending on the nature of the inaccuracy, may result in voluntary provision that is closer to a social optimum. …

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