Social Image and Incentive Mechanisms for Climate Adaptation: A Review

Abstract

This article presents a systematic review of the theoretical and experimental literature on incentive mechanisms for environmental protection when agents are guided by social preferences, in particular preferences for social image and reputation. We first briefly discuss the traditional mechanism design models, based on the Homo economicus assumption, which leads to the second-best solution in the presence of asymmetric information as agents with private information extract rents. We then move on to the design of cost-effective mechanisms with social preferences. Individuals and firms who value a ‘green’ social image may be willing to forego economic gains to maintain or enhance their reputation, creating opportunities for regulators to save public funds by leveraging such behaviour. These mechanisms can also help address the classic crowding-out effect—as mechanisms focusing only on monetary incentives can erode such social preferences. Our synthesis suggests that hybrid mechanisms—combining monetary transfers, public recognition and facilitation services—can harness social preferences to achieve higher environmental protection at lower fiscal cost. We identify key research gaps and outline directions for future work, including the dynamic interaction between incentive mechanisms and evolving social norms.