Environmental policy design and analysis in the context of reference‑dependent preferences

Reference-dependent preferences - individuals’ tendency to make decisions based on how potential outcomes compare to a reference point - can have important implications for environmental policy design and analysis. This paper reviews the empirical literature to understand how reference dependence affects how individuals engage with environmental incentives, adopt new technologies, participate in environmental markets and support environmental policies. Based on this evidence, it examines the implications of reference dependence for environmental policies and identifies areas for future research.