17 Environmental morale and motivation

Economists are convinced that mankind has the capacity to overcome environmental problems if only the right incentives are in place. The environmental problem is identified to lie in the externalities inducing people to destroy the environment because such action is free of cost. The solution is to establish property rights ensuring that every user of the services provided by the environment must pay an appropriate price. The policy instruments suggested rely on an imitation of markets via tradeable licenses, or environmental taxes and subsidies. The relative price effect (see Becker 1976, Frey 1992a) ensures that an efficient allocation of all resources, produced and natural, is achieved. These instruments alone are sufficient to reach that goal provided they are correctly applied; no other instruments are needed. There is by now a large literature on environmental economics buttressing this view (see, for example, the surveys by Cropper and Oates 1992 and Stavins 2005), and there are impressive examples of the effectiveness of using the price system (e.g. Diekmann and Preisendörfer 2003). A large majority of economists has no doubt that using incentive instruments is far superior to relying on either moralistic behavior, or on commands and controls. Environmental economics has indeed been identified as one of the most successful applications of economic theory (Faulhaber and Baumol 1988). In contrast to economists, most psychologists take it as a matter of course that in order to address environmental issues successfully people must change their way of thinking and must adopt “environmental values.” Economists criticize this approach as having little or no impact on the environment. On the other hand, the use of market incentive instruments is put into doubt by many social scientists and environmental activists. They argue that today’s society cannot rightfully sell what it does not own because nature is taken to have rights of its own and also belongs to future generations. Moreover, rationing the scarce environmental resources by prices is often taken to be unfair. The two approaches take extreme positions; environmental morale is certainly more important than claimed in standard economics. An environmental policy solely using price incentives disregards the useful contribution of environmental morale and motivation to overcome environmental degradation.