Date Added: Apr 2011
Environmental economics postulates the assumption of homo economicus and presumes that externality occurs as a result of the rational economic activities of economic agents. This paper examines this assumption using an experimental economic approach in the context of regime shift, which has been receiving increasing attention. The authors observe that when externality does not exist, economic agents (subjects of experiment) act economically rationally, but when externality exists, economic agents avoid the risk of a regime shift that would have negative consequences for others. The results suggest that environmental economics may have to reconsider the assumption of homo economicus.