How to make this Earth Day different

Recognising the power of ownership and changing consumer behaviour can help save the environment
Leong Ching, Business Times 22 Apr 10;

ECONOMISTS have long spoken about a mysterious 'endowment' - the same indifferently manufactured coffee mug will take on a different value once you say: 'Hey! That's mine!' The disparity between willingness to pay and willingness to act can function as a positive market mechanism for environmental change.

If consumers can be made to feel that they possess the environment in some general way, they can be persuaded to make more environmentally friendly choices through the operation of the endowment effect. A combination of moral capital and market forces will create the necessary motivations for change.

Today is Earth Day. Rather than making pledges and switching off lights at inopportune moments, we might take a different track to recognise how coffee mugs can make a big difference to the green movement.

In the 1980s, a group of behavioural economists conducted an experiment on two groups of people - they took some indifferently manufactured coffee mugs, gave them to the first group, telling it that it now owned the mugs.

The second group, which was not given mugs, was then asked how much it would pay for these mugs. At the same time, the first group which owned the mugs was asked how much it would accept to part with the mugs.

The people who owned the mugs needed a significantly higher amount of money to part with the mugs than the buyers were willing to pay. This experiment has since been repeated many times (not just with mugs) with similar results. This disparity between willingness to pay and willingness to accept has come to be known as the 'endowment effect'.

So, what does this have to do with making Earth Day meaningful?

Step One: Recognise the power of ownership

First we see that objects take on a different value once you say: 'Hey! That's mine!'

According to researchers Kentsch and Sinden, the endowment effect is explained this way: 'The observed reluctance to give up money or assets seems likely to be, at least in part, due to various cognitive biases and such motives as an incentive to provide against a feeling of regret that might accompany a deliberately made change in asset position.' A second force operating in the endowment effect is the 'sense of entitlement' that we have by virtue of ownership.

It follows then that if consumers can be made to feel that they possess the environment in some general way, they can be persuaded to make more environmentally friendly choices. This is because what they are willing to accept for a unit of depletion of the environment would be far more than what they are willing to pay for it.

It works this way in practice - it took US$2 billion to clean up Lake Taihu in China, which has been polluted by 20 years of industrial activity. This clean-up creates an environmental asset (the coffee mug). Suppose someone wants to use this asset, introducing pollution into the lake.

They would have to compensate the consumers more than US$2 billion for it. So, this cost consideration will be built into the production process. The market then works to protect the environment.

Step Two: Encourage the community to feel that it owns public places

In Asia, many community-based rules still operate in the use of common pool resources.

In Singapore, there are several literal ways in which this notion of 'taking possession' of the environment has been seen in public policy. For example, schoolchildren often adopt national parks around their school - they take responsibility for its landscaping and future development, and lead guided tours through the park.

The policymaker's intention, when the scheme was launched in 1997, was to create a community outreach programme 'aimed at inculcating a sense of ownership and responsibility for parks among participants'.

Another way it has done so is to ask people to plant trees - anyone who pays the National Parks Board will get to plant a tree, and the board will look after the tree for life. Now the Board of course can plant trees itself, and the US$200 does not defray much of the cost of caring for the tree for any length of time. But this public effort has the effect of allowing people to feel that they own a tree.

The endowment effect is an inexplicable but powerful one. If indeed the willingness to accept is much higher than the willingness to pay, then Singapore would have succeeded in its lessons to build moral capital.

Step Three: Change consumer behaviour

How then can we as individuals 'take possession' of the environment in a meaningful way? One useful concept is that of the 'moral capital'.

We have to recognise that many of the problems we face today are due to the unsustainable levels of demands made by consumers - more cars, more shopping malls, phones, shoes, gilt-edged wrapping paper and an infinite regression of plundering and irresponsible waste disposal.

Economist Herman Daly argues that the forces of economic growth are 'simultaneously eroding the moral foundations of the very social order which gives purpose and direction to that growth'.

On the demand side, he observes, 'the glorification of self-interest and the pursuit of infinite wants' leads to a weakening of moral distinction between luxury and necessity. Moral limits constraining demand for junk are inconvenient in a growth economic, because growth increases when junk sells.'

Earth Day has been around since 1970. For the past 40 years, we have failed to learn the last and most difficult lesson - stop buying junk.

The writer is a PhD candidate at the Lee Kuan Yew School of Public Policy, National University of Singapore. She researches on water policies and regulatory regimes in Asia