Why do informed consumers refrain from buying ethical products? Applying insights from behavioural economics

University of Passau
New York, New York
Economics
DOI: 10.18258/10887
$1,911
Raised of $1,900 Goal
100%
Funded on 5/12/18
Successfully Funded
  • $1,911
    pledged
  • 100%
    funded
  • Funded
    on 5/12/18

About This Project

Studies have shown that even well-informed consumers rarely purchase ethical products. Insights from behavioural economics suggest that informing consumers is not enough. In addition, consumers need to be reassured that other consumers purchase equally ethical products. Only then will they express their ethical values in their own purchase decisions and thus force firms to produce compliantly. My aim is to conduct an economic laboratory experiment that allows for analysing this market dynamics.

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What is the context of this research?

In a study conducted by Ipsos in the UK in 2014 38% of respondents claimed they try to buy ethical products, even if it means spending more. Yet, the share of ethical products in retail sales remains low (lower than 5% in the UK in 2015).

A main reason is that many consumers on the one hand state a preference for ethical products but on the other hand actually don't buy them (Carrington et al., 2014). This attitude-behaviour gap remains poorly understood.

I argue that consumers' expectations about other consumers' behaviour are essential. My aim is to show that not only transparency about production processes but also reassurance about equally ethical purchase decisions of other consumers is substantial to make consumers express their ethical values in their own purchase decisions.

What is the significance of this project?

The incentives for firms to produce ethically increase if consumers make their purchase decisions dependent on ethical norms. Therefore, to promote ethical production it is essential to understand what makes consumers buy ethical products.

My study is the first in behavioural economics that explores both the effect of transparency about production processes and how consumers condition their ethical consumption on expectations of other consumers’ behaviour. This can help develop more effective marketing strategies for ethical products and organise collective consumer action. These are important instruments, especially when national governance faces limits in regulating globalised businesses.

What are the goals of the project?

I will conduct an experiment in which participants play as consumers and producers. Producers decide on the ethical impact of their production. The ethical impact is modelled by reducing a donation to a charity organisation. Producers then offer their products to consumers in a competitive market setting. Consumers make a purchase decision.

To test the effect of transparency, I vary consumers' knowledge about the ethical impact of offered products. To test the effect of reassuring consumers of equally ethical behaviour of other consumers, I vary between individual and collective consumer decisions.

My main hypothesis is that even given transparency, reassurance of equally ethical behaviour of other consumers has a significant positive impact on the prevalence of ethical consumption.

Budget

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I will conduct my experiment in the PAULA laboratory at the University of Passau. To obtain meaningful results, an economic experiment requires real monetary payments to participants. The amount of these payments is dependent on the decisions participants make throughout the experiment. According to the laboratory policy, participants should, on average, earn 12€ (14.80$) per hour. The experiment will last about 50 minutes. The payments, on average, should thus amount to 10€ (12.30$).

A statistical power-test reveals that an appropriate sample size will require 128 participants in total. I will run eight sessions with 16 participants each. For every session, four spare participants will be invited to avoid trouble from participants not showing up. Spare participants receive a show-up fee of 3.50€ (4.30$).

The whole budget will be used for both the payments to participants and the charity donation (see project goals) that goes to Médecins sans Frontières.


Endorsed by

Stefan is my graduate student finishing his Master’s Degree in Economics at the University of Passau. He has been team-member of my chair for two years. His project proposed here is the first study in behavioural economics that explores how consumers condition their ethical consumption on levels expected from others. I expect a publication that is both advancing our understanding of human behaviour in competitive markets and highly relevant for practical measures to promote ethical consumerism.

Flag iconProject Timeline

In April, I will finish the experimental design, elaborate the instructions for participants and program the experiment in z-Tree (Fischbacher, 2007).

In May, I am going to conduct a pretest, fine-tune the experiment according to the results of the pretest and conduct the experiment in the PAULA laboratory at the University of Passau.

In June, I plan to do the statistical analysis of the gathered data.

July will be dedicated to writing about my findings.

Apr 12, 2018

Project Launched

Apr 15, 2018

Experimental design and programming

May 15, 2018

Conducting the experiment

Jun 15, 2018

Statistical analysis

Jul 15, 2018

Writing

Meet the Team

Stefan Grundner
Stefan Grundner
University of Passau, Chair of Economic Theory

Stefan Grundner

I am currently finishing my Master's degree in Economics at the University of Passau, Germany. I have been working as student tutor and research assistant at the Chair of Economic Theory since two years. My main research interests are Behavioural Economics and Macroeconomics.

Throughout my master studies, I have dealt with the issue of ethical consumerism from a behavioural economics perspective. In a seminar on Experimental Economics, I already conducted a similar but simpler market experiment, dealing with markets' influence on sustaining public goods. In the project presented here, I build on the experience and results gained so far.


Additional Information

Sources for calculating the share of ethical products in retail sales in the UK in 2015:

- Total retail sales in the UK in 2015: £375 bn

- Share of ethical products in retail sales in the UK in 2015: £16.6 bn


The market design in the experiment will be a Bertrand duopoly. That means two producers offer their products to two consumers. This setting as been used before to model price competition in experiments, e.g. in Pigors and Rockenbach (2016).


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