Economic instruments and consumption

Senast ändrad: 03 mars 2020

The project has three objectives: to build a macroeconomic model of the economy to help us understand and predict patterns of energy and resource use; to perform microeconomic studies of patterns of demand for individual goods; and to investigate the importance of consumption externalities in determining labour supply.

Existing models can account for trends in global energy use purely on the basis of firms' production functions, by assuming a high degree of substitutability between inputs. But they fail when confronted by further data, which show that household preferences cannot be ignored. We have only a vague description of these preferences, how they are formed, and how they interact with technology and policy to determine economic and environmental outcomes.

Our macroeconomic model will show how the effects of different policy measures reverberate through the economy. Preliminary results suggest that measures which increase the efficiency of low-energy consumption alternatives should be favoured as they lead to `reverse-rebound'; as their price falls, consumers switch towards them, and thus away from more energy-intensive alternatives. And we should beware of supporting efficiency improvements in energy-intensive goods only affordable to the richest; reductions in their price may lead to backfire. Detailed studies of patterns of demand for individual goods will support the macroeconomic model, showing effects of specific policies, such as raising the cost of air travel.

The high-tax European socioeconomic model is blamed for lowering labour supply, a bad thing. But we will investigate the extent to which labour may be oversupplied due to a consumption race, implying that lower labour supply is a good thing. This would turn the `double dividend' argument on its head: environmental taxes lead to lower labour supply, which is a spin-off benefit rather than a drawback!


Project perid:

January 2016 - December 2018

Project leader:

Rob Hart

Project co-workers:

Jonathan Stråle, Doctoral student

Project funder:

The Swedish EPA (Naturvårdsverket)

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