Towards an Understanding of the Performance of Ambient Tax Mechanisms in the Field: Evidence from Upstate New York Dairy Farmers

Abstract Using a design characterized by heterogeneous firms and stochastic ambient pollution, this study explores how results from ambient tax experiments with student subjects translate to a richer field context with dairy farmers in Upstate New York. Results suggest that the ambient tax induces group‐level compliance among students and farmers. However, relative to students, farmers operating “small” firms pollute less and farmers operating “large” firms tend to pollute more. Deviations from theory among farmers are tied to beliefs about the impacts of farming on water pollution, as well as knowledge of neighbors' pollution. This study highlights the importance of framed field experiments in the policy test‐bedding process.