The Role of Experiments for Policy Design

In this chapter, we review selected evidence to demonstrate the value of experiments for policy design with a focus on environmental policy and tax policy. Experiments can substantially improve ex-ante predictions about the outcomes of policy interventions, for example, by serving as “testbeds” to compare alternative market rules and mechanisms under tightly controlled conditions. Experiments also yield important insights into systematic deviations from strict rationality and into the heterogeneity of preferences among decision-makers that can form the basis for the (re-) design of policies. Besides describing various experimental approaches applied in the areas of environmental policy and tax policy, we also discuss further directions for successful collaborations between experimental economists and political decision-makers.