The Effects of Information Network and Policy Instruments on Non-Point Source Pollution

This research investigates producers’ behavior under different information networks and policy instruments in a non-point source (NPS) pollution setting. A laboratory experiment with 228 participants is employed to compare empirical results and theoretical predictions. Participants in groups of six acted as producers and made input level and emissions-reduction technology adoption decisions which influenced pollutants in a context-free setting under an ambient tax. Three information scenarios are evaluated in a 3x2 treatment design, orthogonal to a nudge. The scenarios varied the level of information available in the network regarding others’ technology adoption and whether a subsidy for the technology was provided. Consistent with economic theory, subsidy provision is effective in increasing adoption and lowering pollution levels regardless of the level of information flow in a network. Observing another producer has adopted the technology is found to increase an individual’s own likelihood of adoption. We find that the scenario where no information on other producers was provided yielded a socially optimal pollution level, when combined with a pro-abatement nudge. The findings suggest that subsidies and pro-abatement messaging can improve NPS pollution outcomes, but that care must be taken when incentivizing producers in scenarios with high information flows regarding others’ technology adoption