How sludge impairs the effectiveness of policy programs: a field experiment with SMEs

Abstract Small and medium-sized enterprises constitute the largest share of companies in most economies. As major resource users and significant contributors to environmental pollution, they are relevant targets for public policy programs aimed at increasing sustainability. We study how ‘sludge’ – small frictions in the choice architecture – can impact the uptake and effectiveness of such public policy programs targeted at SMEs. To this end, we conducted a field experiment within an existing policy program designed to support SMEs in implementing cost-effective environmental management practices. We manipulated the process of receiving free green items intended to support the implementation of those environmentally friendly practices within firms. We find that sludge, in the form of minor additional effort required to order the items, substantially undermined the program’s effectiveness. These results have important implications for policymakers: even minor sludge in the choice architecture can seriously impair the effectiveness of public policy programs targeted at companies.