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The Role of Behavioural Economics in Indian Urban Policy for Environmental Sustainability

Written by Rutvik Bhavsar

Fourth Year, BA. Economics, Pandit Deendayal Petroleum University, Gujarat, Gandhinagar

Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.


‘Because people are Humans, not Econs’

Richard Thaler


The adoption of practices like washing hands for a minimum of 20 seconds, excessive and frequent sanitization, maintaining physical distance, etc. has compelled us to change our behaviours and adapt to the crisis even if we’re reluctant. Amidst this, the world continues to face the ongoing environmental crisis. In this regard, we still have many more problems to counter that are related to our behaviour towards the environment that needs to be changed. This article will review the influence of behavioural economics on policymaking in the past and how it can play a significant role in the future, for making effective and efficient environmental policies which are behaviourally ‘guarded.'


Introduction


The concept of ‘homo economicus,’ i.e. the notion of human beings as completely rational organisms, has been unsuccessful at defining the inconsistent and asymmetric patterns of consumption and decision making. Behavioural economics (BE) has played an important role in informing policymakers about individual behavioural patterns in different areas of social welfare. Different biases remain unclear and have unknown implications for policy design and implementation. In terms of environmental equity, current research and policy frameworks have extensively examined and worked on the technological and managerial factors that can contribute in building sustainable urban settlement which has proved to be insufficient in coping up with rapid urbanisation and unplanned human settlements. For example, the supreme court of India took action to displace about 10 million Adivasis (indigenous) communities in order to protect the forest-based regions. This is a managerial action taken by the government to implement pro-environmental policies, but what about the living, feelings, emotions, migration issues and proper rehabilitation of Adivasis? Is it really promoting environmental equity? [1]


This suggests that it is equally important to consider the behavioural aspects of the human race for building environmentally sustainable human settlements through a systematic and integrated public policy framework.


Hence, decisions related to the environment often require careful consideration between external (e.g. financial), internal (e.g. intrinsic motivations) and social (e.g. norms) factors (OECD, 2012).

Behavioural insights given by Mukhopadhyay and Revi (2009) suggest that a series of coordinated actions are necessary, all the way up from the household, to the state and national levels and further into the international domain, in order to preserve a strong continuity with our past. For this, the role of behavioural economics as an effective and efficient policy tool must be clearly specified. The next sections will discuss how behavioural economics has influenced some recent policies in India and what role it can play for effectively dealing with climate change in the urban context.


Urbanisation and Environmental Inequity


The rise of capitalist culture in leading developing economies is the primary reason for social and economic inequality, unjust practices and unsustainable frameworks. This has also resulted in ‘environmental inequity,’ which is a broad terminology suggesting the burden and stress that urbanisation brings to the environment which results in human health problems. The capital city, Delhi, is a classic case which directly points towards the domination of industrial emissions and excessive migration. India has been a part of the urban rat race for exponential economic growth without careful considerations about fair resource distribution. Ideally, urbanisation should not only serve as engines of economic growth but also centres for the integration of human and entrepreneurial resources that generate new ideas, innovations and technologies necessary for promoting sustainable and productive use of resources (Cobbinah, Erdiaw-Kwasie and Amoateng, 2015). To the contrary, evidence suggests that environmental sustainability is at risk owing to excessive urbanisation, rural-urban disconnect, i.e. spatial, social and hypothetical distances among urban and rural individuals.



Fig 1: Percentage of Urban population by Region and Sub-region showing exponential growth in Urbanisation – United Nations Population Division (2018)



Human interactions occur at multiple levels involving individuals, households, organizations, governments, and societies (American Psychological Association [APA], 2017), confirming that anthropogenic forces or the human activity have to be considered in climate change action, mitigation, adaptation, risk, impacts, effects and coping. With 55 per cent of the world’s population living in urban areas and rapidly increasing urbanisation, the situation is likely to be critical.


This is because increasing urbanisation leads to increasing climate issues, which in turn, can induce increased human migration from rural to urban areas.

Climate change-induced catastrophes like droughts and floods in the rural regions often result in loss of livelihood for millions in those regions. This ultimately results in triggering migration from the rural areas to urban regions and hence, urbanisation increases. This is a threatening cycle that can be interpreted as a positive feedback loop going from urbanisation to climate change and vice versa (Mukhopadhyay & Revi, 2009). This cycle is likely to continue and aggravate environmental inequity if not intervened holistically. This scenario of urbanisation and environmental inequity clearly needs a human-centric, individual behaviour oriented approach to bring change on a broader level.



Urban Policy and Environmental Sustainability in the Urban Framework


Public policies from state to international level have extensively focused on environmental sustainability through the lenses of economic factors; poverty, unequal income distribution, legal changes and more. Though, recent pivotal shifts from the ‘rational man’ assumption to mathematical models, neoclassical economics, and finally to behavioural economics can be manifested in experimental approaches to such problems. Recently, the Indian Prime Minister, Narendra Modi, suggested that human behaviour needs to be in harmony with nature and the environment to mitigate climate change (Bloomberg, 2019). Public schemes, campaigns and movements in India and overseas reflect a move towards behaviour oriented economic notions –– political nudges, individual biases, default systems, heuristics and much more (Sunstein and Reisch, 2013). [2][3], These all are the theories about the predictable errors people are likely to make as they are not Econs and hence if we can anticipate those errors, we can devise policies that will reduce the error rate (Thaler, 2016). Take the example of GiveItUp started in 2015 — a campaign aimed at motivating LPG users who can afford to pay the market price for LPG to voluntarily surrender their LPG subsidy (Ministry of Petroleum & Natural Gas, GoI, n.d.). Swachh Bharat Movement (SBM) initiated behavioural change in usage of toilets, more than five lakh 'swachhagraha,’ foot soldiers of the SBM, were recruited; the similarity with satyagrahis is intentional to reinforce the message. Jan Dhan Yojana is aimed at the opening of bank accounts by each and every individual but its success relies on people using these accounts regularly which happened through applications of default rules, making it easy to choose, loss aversion and more (Ministry of Finance, GoI, 2019). 401K Savings is aimed at increasing the savings of the employees in the United States. It removed paper-based formalities and used default systems wherein the employee only had to fill forms in-order to opt-out of the scheme and not for opting the scheme (Thaler 2016).


Despite these moves by various governments, a systematic approach to comprehend human behaviour is needed. Most public policies attempt to cater to a larger mass at a time which has been proved to be less efficient hence, the New Urban Agenda (2016) has stressed on the fact to act and implement locally, suggesting to focus on the need to work at the grass-root levels. It suggested policy implementation at several levels — “with the participation of subnational and local governments, parliamentarians, civil society, indigenous peoples and local communities, the private sector, professionals and practitioners, the scientific and academic community, and other relevant stakeholders, to adopt a New Urban Agenda” (UNDP, 2016) with that the report said, “There is no single prescription for improving urbanization and achieving sustainable urban development” (UNDP, 2016). But then, as in the field of health, as every patient does not get the same prescription for similar diseases, the commonness in the methodology of diagnosis is systematic.



Behavioural economics as a tool for diagnosis and problem-solving – A key role player


Conventional economics has not efficiently internalised the negative externalities that are causal to environmental degradation. Environmental costs of smoking, usage of plastic, kerosene etc., cannot be countered by only taxing or increasing prices. Also as briefed above, the major problem in the context of urbanisation and environmental problems lies in the individual behaviour; in the inefficient consumptions patterns, individualistic decision making, and more. Hence, we need to view the role of BE through these lenses. Extensive research in the field of BE in policy framework and environmental protection incentives have focused on getting ‘incentives right.’ Behavioural economists provide theoretical frameworks which are applied to public policymaking. Schemes like Mandatory Energy labelling for household air-conditioners in Singapore, United Nations Zero Waste Place (Low, 2012), which refer to how environmentally friendly the product is, will eventually make it easier to make a sustainable choice. These and many more policies have applied behavioural science theories such as:


1) Loss aversion: a loss hurts more than an equivalent gain gives pleasure. For example – a) a 100% loss of 50 rupees and b) a 50% chance of gaining rupees 100 & 50% chance of losing 150, what would you choose?


2) Image motivation: a tendency to be motivated partly by others’ perception. For example, to perceive a restaurant good just because my neighbours always go there.


3) Availability heuristics: to choose what is readily available. For example, to use a plastic bag instead of a cloth/paper bag just because.


The aforementioned examples are few spotlights suggesting the significance of the role of human behaviour in policy-making, although a systematic approach seems to be lacking. In the example of the United Nations Zero Waste Place approach, the initial level of participation was low, it was only after the media presented the movement to the citizens, when the participation grew. Similarly, in the case of Swachh Bharat movement an empirical study of the Twitter data (i.e. around 400,000 tweets) collected for the period of December 1, 2017, to March 31, 2018, pertaining to Indian Cleanliness Campaign called Swachh Bharat Abhiyan (Dhiman and Toshniwal, 2019), shows the involvement of mass media to accelerate image recognition. Also, celebrities repeatedly approached the public with messages of cleanliness, thereby increasing the participation. These examples suggest how human behaviour has been playing an important role in promoting public policies. This has been known for decades but a systematic study of why, how and what induces the behaviour and motivates action is lacking. With such case studies, the research approaches to the role of BE is a diagnostic one. The diagnosis is behavioural, not a market failure, and the treatment prescribed is only thinly veiled behavioural engineering (Berndt, 2015). When we talk about the market, we consider a mathematical model of the market that is based on certain assumptions like rationality or a theory of the market. When things do not work as expected in terms of models and theory, we call it failures, for example, failures due to lack of information, inequality and so on. Whereas when we consider the diagnosis as a behavioural problem, we focus on individuals and the behavioural errors they have made, which eventually lead to the problem. For example, the GiveItUp scheme. People are aware of whether they can afford LPG cylinders and who deserves a subsidy on LPG. Despite knowing this, people did not give up their subsidy even when they could afford it before the scheme — this is behavioural. So this is not a market failure due to lack of information. If so, how did a movement of ‘#GiveItUp’ lead to about 10 million people to surrender their subsidies, without making them ‘completely informed’?


Conclusion


Urbanisation and environmental equity are multifaceted issues that need an integrated approach to be dealt with. This review has specifically focused on conveying a systematic role of behavioural economics in the context of urbanisation, public policy and environment. Studying urbanisation is complex, exhaustive but interesting and insightful. Individual experimental researches on specific environmental problems are needed to diagnose the behavioural “disease” and an integrated policy framework is needed to “treat” the environmental problems. Local problems need local solutions.


Behavioural errors and predictable behavioural error of humans can be the same across the world, though techniques of diagnoses and treatment need to be different. This is because of the mediation of variables like – culture, social structure, standards of living, economic conditions and more.

The same behavioural nudges used in the United Kingdom or the United States of America for increasing the efficiency of traffic management is unlikely to work in India, as the way people perceive those nudges would differ. The current COVID-19 crisis is one of them, wherein motivating people to act pro-environmentally becomes difficult. For example in such a situation, urging people not to use plastic bags would go in vain, given the ‘fear’ of virus people would be reluctant to use reusable bags since it increases the plastic waste, similarly washing hands can lead to water wastage. The key learning from such a situation is fear-induced motivation like sanitizing hands have become a part of routine very quickly, though closing taps and stopping water leakages still haven’t. This case can be seen through the lens of psychological distance– the distance of a stimulus (object or event) from the perceiver’s direct experience. People perceive the threat of coronavirus as psychologically near to them whilst perceive climate change as a psychologically distant event, a predictable error, which can explain people’s behaviour with sanitization and with pro-environmental behaviours. In such cases further, an experimental research approach is needed at a local/regional level for “diagnosis” of the behavioural gaps and an action-based local approach to fill them.











[1] For more, see https://casi.sas.upenn.edu/iit/brototiroy


[2] See Anderson & Stamoulis, 2007 https://www.researchgate.net/publication/5021691_Rural_Development_and_Poverty_Reduction_Is_Agriculture_Still_the_Key


[3] See Behavioural Economics: Nudge: any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. individual bias - any tendency or preference or partiality. https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/


See APA Dictionary: Bias: any tendency or preference or partiality.

https://dictionary.apa.org/bias


See Behavioural Economics: Default systems: Default options are pre-set courses of action that take effect if nothing is specified by the decision-maker.

https://www.behavioraleconomics.com/the-be-guide/the-behavioral-economics-guide-2017/


See APA Dictionary: Heuristics - an experience-based strategy for solving a problem or making a decision that often provides an efficient means of finding an answer but cannot guarantee a correct outcome. https://dictionary.apa.org/heuristic




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