When Incentives and Nudges Meet: Promoting Budget Allocations for Undervalued Policies

TL;DR

This study shows that combining financial incentives and behavioral nudges can significantly influence local government budget officers to allocate more funds to undervalued policies, especially those with delayed benefits.

Contribution

It provides empirical evidence that low-cost behavioral interventions, when combined with financial incentives, effectively promote better budget decisions in public policy.

Findings

All treatments increased budget assessments significantly.

The combination of incentives and nudges had the largest effect.

Nudges alone increased self-financed budget portions.

Abstract

Budget officers often assess public project proposals based on available financial support and expected outcomes. However, behavioral factors such as time discounting and psychological hesitation may lead to underinvestment in programs with delayed but significant benefits. This study investigates whether financial incentives and non-financial nudges can influence budgetary decisions in local governments. We conducted a nationwide mail-based survey experiment targeting budget officers in Japanese municipalities and received 490 valid responses. Using a 2*2 randomized design, we tested the independent and combined effects of a financial incentive (a 50% national subsidy) and a non-financial nudge (loss framing and peer information). All three treatments significantly increased assessed budget amounts compared to the control group. The largest effect appeared in the combination group (approximately 1.1 million JPY higher, p < .01). Both the financial incentive and the nudge independently increased assessments by approximately 650,000-670,000 JPY (p < .01). Notably, only the nudge raised the self-financed portion of the budget. These findings demonstrate how low-cost behavioral interventions can improve budget assessments for undervalued projects. As an application, we embedded the experiment in a case involving HPV vaccine promotion in Japan, but the approach can be broadly relevant to other public policy domains requiring forward-looking budget decisions.