Curbing the consumption of positional goods: Behavioral interventions versus taxation

Abstract

Little is known about whether behavioral techniques, such as nudges, can serve as effective policy tools to reduce the consumption of positional goods. We study a game, in which individuals are embedded in a social network and compete for a positional advantage with their direct neighbors by purchasing a positional good. In a series of experiments, we test four policy interventions to curb the consumption of the positional good. We manipulate the type of the intervention (either a nudge or a tax) and the number of individuals exposed to the intervention (either the most central network node or the entire network). We illustrate that, if the entire network is exposed to the intervention, both the nudge and the tax can serve as effective policy instruments to combat positional consumption. Nevertheless, taxing or nudging the most central network node does not seem to be equally effective due to the absence of spillover effects from the center to the other nodes. As for the mechanism through which the nudge operates, our findings are consistent with an explanation where nudging increases the psychological cost of the positional consumption.