Behavioral experiments to improve the performance of markets, regulation, and charitable donations in providing resources and environmental quality
CALS Impact Statement
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Overview
abstract
My early work in the environment revealed that traditional economic models failed to explain behavior around Superfund sites and the extreme reluctance to make trade-offs involving environmental assets. These problems pushed me into asking basic questions in a controlled laboratory environment in collaboration with colleagues from psychology. My current work with colleagues in Applied Economics and Management (AEM) focuses on using the Laboratory for Experimental Economics and Decision Research to apply experimental and behavioral economics to questions ranging from food safety, to electric power markets, to improving charitable contributions, to stigma surrounding contamination from natural or human causes such as terrorism or pollution. Recently, working with grad students in AEM, this work has been extended to Africa.
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submitted by
Schulze, William D Kenneth L. Robinson Professor of Agricultural Economics and Public Policy
issue being addressed
As noted above, my early work in environmental economics revealed fundamental flaws in economic theory. For example, in spite of scientific evidence that Superfund sites posed little risk, large property value losses were present. Similarly, the compensation needed for people to give up environmental quality vastly exceeded the willingness to pay to retain environmental quality. These anomalies forced me to begin to conduct basic research in the new field of Behavioral Economics. I continued this work when I came to Cornell by developing the Laboratory for Experimental Economics and Decision Research as an AEM facility, now used by about 20 faculty in AEM and across campus.
response
The laboratory allows students to participate in simulated markets where they can gain actual experience and learn by doing. In the morning, when student subjects are not available, the laboratory is utilized extensively for conducting such exercises not only for the AEM business program but for courses in Policy Analysis and Management, Economics, Civil and Electrical Engineering, and the AEM graduate program. About 2,000 students use the lab each year. In terms of research, the lab has projects and funding relating to food stamps and obesity, electric power markets, funding issues in generic advertising for agricultural commodities, food safety, environmental regulation, and family behavior.
impact assessment
The behavioral economics approach facilitated by the lab has contributed to understanding issues such as the failure of electric power markets in California, provided guidance to the New York Public Service Commission on market design, provided guidance to the Federal Energy Regulatory Comission on market design, helped to stimulate changes in U.S. Environmental Protection Agency procedures for Superfund sites by explaining that such sites are stigmatized, explored how voluntary emissions controls might or might not be effective, explored the risk response to mad cow disease and what can be done about it, and examined alternative ways of funding commodity promotion programs.
funding source description
Department of Energy and the Power Systems Engineering Research Center which is funded by NSF and the Electric Power Industry
