15 October 2020

Public Discourse and Socially Responsible Market Behavior

Problems such as climate change and environmental pollution can be traced back to markets where not all costs of production and consumption can be taken into account. The usual measures of taxation or regulation can be ineffective due to their complexity and political inertia. An effective measure, on the other hand, is the participation of all market participants in a public debate that changes market behavior towards greater overall welfare.

Key Issue

Negative external impacts from market activity can be severely detrimental to society. Many modern problems – climate change and environmental pollution – can be traced to markets where prices do not reflect all costs involved in production and consumption. The standard economic approaches, taxation or regulation, can be ineffective due to the complexity of determining optimal policy and to political inertia. We study a complementary remedy, the fostering of socially responsible market behavior, by which people voluntarily internalize the externalities generated by their market activities.

Approach and Methodology

We leverage the control afforded by laboratory experiments to explore the role of public discourse, such as the “Fridays for Future” movement, in fostering social responsibility. We implement laboratory markets where traded products vary in their social impact. The harmful type of product costs less to produce, but creates external harm for an uninvolved third party. The responsible product involves a higher production cost but imposes no external harm. We measure market social responsibility by the extent to which market actors exchange the responsible product type and vary whether market actors and third parties can participate in public discourse prior to engaging in the market.

Key Findings and Conclusions

All of our experimental conditions that introduce public discourse produce substantially higher degrees of market social responsibility, relative to a control case in which discourse is absent. We find significant positive effects in two different populations (one from Switzerland and one from China), and across different discourse conditions that vary as to whether study participants know or do not know their subsequent market roles, whether impacted third parties participate in the discourse, the timing of the discourse, and the nature of the external impact. Our study thus provides robust and consistent evidence that public discourse can change market behavior in a way that reduces external harm and yields greater aggregate welfare.