Should green cars get tax breaks?

Government and Conservative plans to give tax breaks for cleaner cars might be a waste of money, according to this new paper by Dan Ariely and colleagues.
There's a simple reason for this. People act green in part because they want to be seen to be doing good - what Professor Ariely calls "image motivation." They buy the Toyota Prius in the hope others will think: "he's a good guy: he cares about the environment."
But if you give more tax breaks to the Prius, others will stop thinking this, and instead think: "that guy's just taking advantage of a tax break." The signalling virtue of the Prius therefore falls. People motivated by image might therefore be less likely to buy it.
Financial incentives can therefore crowd out image motivation.
This isn't a mere hypothesis. Professor Ariely tested it. He and his colleagues asked undergraduates to tap away at a keyboard, with each tap generating a donation to charity. They found that people who thought they were working for a charity that others approved of made more clicks in public than they did in private. That suggests image motivation is important.
However, when subjects were given private payments alongside the donations to charity the number of keyboard taps made in public fell, whilst the number made in private rose. This suggests pecuniary incentives really do crowd out image incentives.
Which means that tax breaks to buy green cars might not stimulate much demand for them.
Incentives don't always work as planned.

Comments

[kinglear]

I would have to say the wrong conclusion was reached. People instinctively do not wish others to know how greedy/rich/well paid or needy they are. So of course they tapped more in private to get more cash, but did not want others to see how much they were earning

[Tom H]

There's also the fact (I say "fact"; I don't know, someone told me once and it does sound plausible) that it's pretty much always a more environmentally friendly option, in terms of total emissions, to stick with the car you've got than to buy a new, more energy-efficient car. The new car will use less energy while you're driving it, but the energy used to manufacture the new car is substantially greater than the energy you save by driving a more efficient car.

So driving a new Toyota Prius, rather than keeping your old car going for a few more years, does much more to signal that you "care about the environment" than it does to reduce overall emissions.

[MyNameIsMatt]

Interesting study. Thanks for linking, however, I'm a little concerned with the conclusion is states as it's reiterated in your post. The study showed no statistically significant decrease in prosocial activity when monetary incentive was introduced. While the logic behind crowding out prosocial incentive with monetary incentives in public setting sounds reasonable enough, they weren't able to support such a conclusion with their study.

So, for all anyone knows from reading this study, tax incentives on hybrid cars will have no negative impact. But, in the situation where owning a hybrid becomes a private decision, the tax incentive should produce a gain. Under that scenario, the tax incentive is a good thing.

However, more importantly from the study was the suggestion that monetary incentive should almost always be for private events as there is a significant finding of positive impact in those cases.

[Jim Magilton]

This crowding-out hypothesis has been around for a long time. Bruno Frey wrote about this in 1997, and since then a number of lab studies have found evidence for this and a number of review studies have been published. For example: http://tinyurl.com/37b92u.

The study you link to described this in terms of image motivation. Other studies explain this by reference to social norms ("I want to do what everyone else does")or in terms of moral motivation ("I do what I think is right"), to name just two others. There is also an idea that financial incentives can actually increase internal motivation, i.e. crowding-in. This could happen if the charge/subsidy is seen as symbolic, strengthening individuals belief in what they are doing.

Of course, even if tax breaks crowd out internal motivation, the price effect could still be sufficient to increase demand for green cars. It all depends on the size of the cut.

[Mark Wadsworth]

No, this is complete fuckwittery, the best you can do is use your car until it falls to pieces (and use it as sparingly as possible).

Manufacturing a new car and dispoaing of an old one causes much more pollution and uses far more natural resources than the incremental extra pollution caused by running an old car for a few extra years.

[4danglier]

Fuckwittery (thanks Mark Wadsworth) from SUV drivers, jealous of those whose taxes are NOT going up. Why drive an SUV? Compensating for a deep-rooted sense of personal insecurity. In other words, small penis (asymmetric boobs). Those who bolt bull bars to the front are worse: only one testicle (cellulite). You know it's true.

[pommygranate]

4danglier

err, who's the insecure one?

[pommygranate]

Green cars and fuel-efficient cars should not get tax breaks because it just means people will use them more, consuming the same amounts of oil.

The only effective way of lowering car useage and reducing carbon consumption is to introduce carbon taxes (offset by lower income taxes)

[Andrew Duffin]

pommygranate: "offset by lower income taxes"

!!!

Aye, that'll be right.

And helped along by a few airborne porcines, I have no doubt.

[wonder]

I see nothing wrong with the tax break if it sways someone over to a car that burns less fuel who is it hurting? Also my comment to 4danglier I own a suv to haul my family of 7. My parents live 400 miles from me so when we go to stay for 2 weeks it halls everybody and their luggage my work car can not do that. My familys safety is mor important to me then ileagally shoving them into a small car with not enough seat belts.