Kjell Arne Brekke

University of Oslo · Department of Economics

We introduce loss aversion in an infinite‐horizon, alternating‐offers model. When outside options serve as reference points, the equilibrium of our model follows that of the standard Rubinstein bargaining model, i.e., outside options do not affect the equilibrium unless they are binding. However, when reference points are given by the resources pla...

In four public-good game experiments, we study self-sorting as a means to facilitate cooperation in groups. When individuals can choose to join groups precommitted to charity, such groups sustain cooperation toward the group's local public good. By eliciting subjects' conditional contribution profiles, we find that subjects who prefer the charity g...

The energy markets are characterized by many agents simultaneously solving decision problems under uncertainty. It is argued that Monte Carlo simulations are not an adequate way to assess behavioral uncertainty; one should rather rely on stochastic modelling. Drawing on economics, decision theory and operations research, a simple guide on how to tr...

In cooperative endeavors among economically heterogeneous parties, the contribution decisions can often be framed in different ways. But do such framing differences affect behavior? We report the results of a laboratory experiment on threshold public goods with heterogeneous endowments and different frames. Four treatments frame two variables, each...

It has recently been argued that giving is spontaneous while greed is calculated (Rand et al. 2012). If greed is calculated we would expect that cognitive load, which is assumed to reduce the influence of cognitive processes, should affect greed. In this paper we study both charitable giving and the behavior of dictators under high and low cognitiv...

Moral objections to quota trade are common in public discussion. The underlying moral reasoning is often hard to extract from the public's rhetoric, and economists often claim that the objections are due to misunderstandings. In this paper we test experimentally one possible objection to trading emission rights: that selling pollution rights is obj...

We show how increased competition in a media market may have implications for the competition between firms that are advertising in that medium. We apply a simple model of a product market with network externalities where firms buy advertising space in a media market and find that entry in the product market of a new and superior product is more li...

Empirical studies often report that social inequalities in health are larger in Nordic welfare states than in less egalitarian societies. This is called the health equality paradox, and may actually follow from some properties of bivariate measures such as the concentration index. In this paper, we show why some income transfers increase measured h...

Bivariate measures of health inequality are influenced by changes in two variables: health and a socioeconomic variable, such as income. For these measures, what is reported as an increase in health inequality might just as well be a reduction in income inequality. In particular, several papers have found that socioeconomic health inequalities in N...

In social dilemmas, there is tension between cooperation that promotes the common good and the pursuit of individual interests. International climate change negotiations provide one example: although abatement costs are borne by individual countries, the benefits are shared globally. We study a multi-period, threshold public goods game with unequal...

Without resorting to the folk theorem or to altruistic preferences, we demonstrate that the problem of overharvesting among individually rational harvesters in a local commons vanishes if the harvesters share, and voluntarily contribute to, some public good. Formulating the model as a two-stage sequential game, the harvesting of a renewable natural...

Are some individuals generally more pro-social than others? If so, socially beneficial commitments could serve as a costly screening device helping the pro-social to match. We present a public good game experiment in which subjects choose between two group types: in blue groups, subjects receive a fixed extra payoff; in red groups, this extra payof...

A growing body of empirical studies have reported that social inequalities in health are as large (or even larger) in the Nordic welfare states than in many less egalitarian societies. This is highly surprising since the welfare state is rooted in income equality, free access to education and health services, and a generous social benefit system. T...

Duty-orientation implies a warm glow of giving as well as a cold shiver of not giving enough. If duty-oriented consumers learn their moral responsibility by observing others’ behavior, social interaction in contribution behavior arises. However, since moral responsibility is a burden, duty-oriented consumers may be less willing to accept responsibi...

Several studies have demonstrated that individual contributions to public goods are increasing in others’ contributions. The underlying causes for this, however, are not yet fully understood. We present a model of duty-orientation in which moral responsibility is learned through observations of others’ behavior. Since, in our model, responsibility...

We study the impact of cognitive load in dictator games to test two conflicting views of moral behavior. Are social preferences skindeep in the sense that they are the result of humans’ cognitive reasoning while the natural instinct is selfish, or is rather the natural instinct to share fairly while our cognitive capacities are able to adjust moral...

Several empirical papers have indicated that the health inequalities in the Nordic welfare states seem to be at least as high as health inequalities in other European countries even if the Nordic states have a more egalitarian income structure. This is in contrast to standard economic theory that predicts that income equality should lead to health...

Corporate social responsibility can improve firms’ ability to recruit highly motivated employees. This can secure socially responsible firms’ survival even in a highly competitive environment. We show that if both socially responsible (green) and non-responsible (brown) firms exist in equilibrium, workers with high moral motivation, who shirk less...

This paper attempts to bring some central insights from behavioural economics into the economics of climate change. In particular, it discusses (i) implications of prospect theory, the equity premium puzzle, and time-inconsistent preferences in the choice of discount rate used in climate-change cost assessments, and (ii) the implications of various...

Work contributes to people’s self-image in important ways. We propose a model in which effort is unobservable and where individuals have a preference for being important to others. This gives the following predictions: (1) if a worker’s effort is paid by his marginal productivity (bakers), effort is just like in the standard model. (2) If a worker’...

The European Union has introduced directives that aim to liberalize and integrate electricity and gas markets in Western Europe. While progress has been made, particularly in electricity markets, there have been setbacks: for example, because of concerns about national interests and security of supply. Thus it is possible that only part of the ener...

It is well known from Hardin's “Tragedy of the Commons” [Hardin G (1968) Science 162:1243–1248] that, if open access is allowed, overgrazing typically results. Hardin, and most authors of the subsequent literature, adopted a static view of the underlying ecosystem. Here we extend this tragedy of the commons to consider the dynamics of the involved...

By combining a theory of herding behavior with the phenomenon of availability heuristic, this paper shows that non-informative advertisements can affect people's choices by influencing their perception of product quality. We present a model in which people can learn about product quality by observing the choices of others. Consumers are, however, n...

To secure their membership in a popular group, individuals may contribute more to the group's local public good than they would if group formation were exogenous. Those in the most unpopular group do not have this incentive to contribute. This may result in substantial differences in individual effort level between groups. Our model thus provides o...

En France, une ann�e suppl�mentaire au-del� du taux plein dans le r�gime g�n�ral ne donne droit � aucune augmentation de pension. Cette taxe sur le prolongement d'activit� distort les choix des agents en faveur d'un �ge de d�part en retraite inf�rieur � celui qui pr�vaudrait dans un contexte optimal. Cette taxe pourrait �tre �limin�e par la mise en...

Morally motivated individuals behave more cooperatively than predicted by standard theory. Hence,if a firm can attract workers who are strongly motivated by ethical concerns, moral hazard problems like shirking can be reduced. We show that employers may be able to use the firm’s corporate social responsibility profile as a screening device to attra...

“Green” consumers appear to accept individual responsibility for the provision of public goods. The propensity to take such responsibility may depend on beliefs about others’ behavior, even for consumers motivated by internalized moral norms, not by social sanctions. This effect can produce multiple equilibria with either high or low demand for “gr...

When individuals hold a preference for high relative consumption, competition to achieve social status can lead to inefficiently high levels of production and consumption, contributing to natural resource depletion and environmental degradation. In the 1970s, Fred Hirsch argued that an increasing portion of expenditure is allocated to status-seekin...

A laboratory experiment is used to investigate the practical usefulness of two types of models or decision tools employed in social planning. The case is quota setting in a two-species fishery. We find that advice from both a simplistic two-species stochastic optimization model and from two single-species simulation models improve management. The t...

"Green" consumers appear to accept individual responsibility for public good provision. The propensity to take such responsibility may depend on beliefs about others' behavior, even for consumers motivated by internalized moral norms, not by social sanctions. This can produce multiple equilibria, with either high or low demand for "green" products....

Sustainability is usually defined as a requirement of each generation to manage its stocks of man-made and natural capital such that the utility that it ensures itself can be shared by all future generations. Here we extend this definition to the case where capital management does not have deterministic consequences. A characterization is offered w...

The commodities one chooses to consume serve as visible signals of identity. With increased affluence, more economic resources are required to confirm one's identity as a "normal, respectable member of the society." We argue that this induces formal structures similar to preferences for high relative consumption. This increased cost of confirming i...

This paper adopts soil scientific models of soil productivity and degradation in Tanzania into an intertemporal optimisation framework. The farmers choose labour input, capital investment and fertiliser input to maximise soil wealth, i.e., the present value of soil rent. First we focus exclusively on soil mining, considering the nutrient stocks as...

In this paper, we present an economic model of moral motivation. Consumers prefer regarding themselves as socially responsible individuals. Voluntary contributions to public goods are motivated by this preference. The self-image as socially responsible is determined by a comparison of one’s actual behavior against an endogenous morally ideal behavi...

Economic models typically assume that individual wants are determined by forces exogenous to the economic system. Social psychology and consumer research, in contrast, support the view that the perceived benefits of goods and services are strongly affected by endogenously determined social norms. We present a selective overview of the literature on...

We derive a measure of national income, defined in terms of maximum sustainable per capita consumption. If population and interest rates are constant, the income generated by natural resource extraction is the return on resource wealth, defined as the present value of future resource rents. With a growing population or declining interest rate, sust...

Cost-effectiveness analysis, which ranks projects by quality adjusted life years gained per dollar spent, is widely used in the evaluation of health interventions. We show that cost effectiveness analysis can be derived from two axioms: society prefers Pareto improvements and society values discounted life years, lived in perfect health, equally fo...

There is no consensus on how to measure interpersonally comparable, cardinal utility. Despite of this, people repeatedly make welfare evaluations in their everyday lives. However, people do not always agree on such evaluations, and this is one important reason for political disagreements. Thus, to keep in control of the normative premises, decision...

A deontological (or "Kantian") approach to intergenerational fairness suggests that sustainability criteria should be imposed as prior constraints on the maximization of social preferences concerning the distribution of welfare between present and future generations. In particular, it is plausible to assert that each successive generation holds a d...

This paper considers the problem of finding the optimal sequence of opening (starting) and closing (stopping) times of a multi- activity production process, given the costs of opening, running, and closing the activities and assuming that the state of the economic system is a stochastic process. The problem is formulated as an extended impulse cont...

The question of whether changes in net national product (NNP) will measure changes in welfare is investigated in this paper. M. Weitzman (1976) demonstrated that, under specific conditions, NNP is proportional to discounted consumption. The result requires NNP to be measured in current prices in utility units. Changes in real NNP measured using giv...

Aslaksen et al. (1990) concluded that the petroleum wealth of Norway, and hence the permanent income from petroleum extraction, was as uncertain as the yearly oil revenues. Their conclusion was based on wealth estimates using official price projections, with no independent empirical analysis of the oil price process. In this paper the wealth estima...

It is shown that if social welfare is the sum of logaritmic utility function, the optimal income distribution and the welfare effect of any income redistribution is independet of the equivalence scales. In optimum all households have the same per capita income. Based on this observation it is discussed to what extent traditional welfare theory can...

The oil price shock in 1973/74 spurred a new interest in the economics of natural resources. Scarcity of important natural resources was acknowledged as a potential obstacle to continued economic growth. An extensive branch of the literature (see e.g. Dasgupta and Heal, 1979, for a review), is devoted to the question of whether resource scarcity ca...

A parametric calculation model and a regression model have been developed for estimating damage to a shoreline following an oil spill accident. The calculation model uses the amount of oil in nearshore waters, oil characteristics, littoral area and wave exposure of the different types of shoreline as the primary input parameters. It simulates, as a...

We apply the model of advertising as distortion of social learning to market with excess inertia. We assume that utility from a choosing a product depend on the share of current users, and that each new consumer enters am arket whith a large base of consumers already commited to a product. Both conditions makes excess inertia more likely, and our a...

We will be particularly concerned with the consequences for economic growth and environmental degradation. This is also the perspective of Ng and Wang (1993). They consider a model where welfare of the representative consumer depends on own consumption, relative consumption, consumption relative to private aspiration (where aspiration is assumed to...

Money and environmental quality units are considered as unit for aggregating willingness to pay. For those with a high willingness to pay for environmental quality, the choice of money as aggregation unit is most favourable. Arguments for either choice of aggregation unit are discussed, and I argue that none of them is convincing, and that both cho...