The Onset of Offsets: The Limits of Social Signaling in Eco-Friendliness

Citizens in the USA spend a large amount of time, effort, and money engaging in voluntary actions to improve environmental quality. The motivation behind these actions is not clearly understood. They could be driven by private desire for improved environmental quality or by a social desire to signal eco-friendliness. To determine if these actions are driven by private or social considerations, we run an experiment that manipulates the publicity of carbon offset purchases, posting some consumers' names online and giving them share-able certificates that confirm their purchase. On average, pilot data shows that the public treatment does very little to increase uptake. However, the public treatment more than doubles uptake (14% to 31%) among those that have small second-order beliefs -- those that believe that everyone else thinks that carbon offsets are rare. This points to consumers receiving social utility from being first-movers on an eco-friendly action, though this social utility erodes quickly as consumers grow to believe that others will not see them as first-movers. This finding confirms the existence of an "honor region" as described in (Benabou and Tirole, 2011). We use this finding to discuss broader implications for tax and subsidy policy regarding policy on climate and other environmental externalities.