The Effect of Buyout Options on Effort Contributions to Reduce Carbon Emissions∗

A frequently cited argument against the use of market-based instruments like emission permit trading systems is that they diminish our sense of moral responsibility to be good environmental citizens. By changing pollution from a sin against nature remedied only by personal atonement into a commodity that can be bought and sold with no special social consequences, market-based instruments may weaken our resolve in dealing with environmental challenges. We report on the results of laboratory experiments designed to explore this idea. In particular, we look at how the personal effort exerted by subjects changes when other group members take advantage of an offer to buy out of their obligation to perform lab tasks that contribute toward carbon emission reductions. We find that on average subjects reduce their effort when their peers buy out. However, the aggregate result masks significant heterogeneity across individual responses. Those who choose not to buy out despite its expected profitability have no response to the treatment while those for whom it would simply not be profitable to buy out register larger reductions. The magnitude of these responses is increasing in the share of the group that accepts the buyout offer with an approximately 5-10% reduction in effort for every 10 percentage-point increase in the fraction of subjects who buy out if the response is linear. Thus a group in which half of subjects accepted the buyout would experience a 25-50% reduction in effort levels of those who did not buyout. JEL Classification: C90, C91, H41, Q54