We consider appeals to social norms as a policy instrument to address consumption externalities. We explore whether appeals to social norms can be an efficient policy instrument and compare the efficiency of such appeals to the efficiency of taxation in addressing consumption externalities.
We find that when the existing norm helps to shift consumption towards the socially optimal level of consumption, taxation welfare dominates appeals to social norms as a policy tool.
While previous studies have found that economic instruments are superior to information in other contexts, we arrive at a different conclusion for situations where the norm shifts behavior away from what is socially optimal. In such cases appeals to social norms can be a better policy instrument than taxation.
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