The Endowment Effect: A Behavioural Economic Perspective on Land Use Policy, Environmental Protection and Taxation

Abstract

This essay explores the implications of the endowment effect in various fields including housing markets, environmental policies, and taxation. This essay clarifies the definition and importance of the endowment effect and inspected related literature on the topic of the endowment effect and the fields of application. In the housing markets, this phenomenon is examined from the perspective of the Chinese rural villager displacement programme. In this situation, the endowment effect is influenced significantly by attachment rooted in emotion, ownership of the property, and the replaceability of houses. In environmental policies, the endowment effect is found to result in disparate assessments of favourable outcomes and adverse consequences in the environment. This introduces the concept of the endowment factor as a tool for policymakers. In the realm of taxation, the endowment effect is discussed in relation to tax salience, influencing public perceptions and responses to tax policy changes. Mitigation strategies for the endowment effect such as vocational training, fair compensation, the use of agents, and providing accessible information are also discussed.