Information Nudges, Subsidies, and Crowding Out of Attention: Field Evidence from Energy Efficiency Investments

Matthias Rodemeier () and Andreas Löschel
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Matthias Rodemeier: Bocconi University

No 16141, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: How can information substitute or complement financial incentives such as Pigouvian subsidies? We answer this question in a large-scale field experiment that cross-randomizes energy efficiency subsidies with information about the financial savings of LED lighting. Information has two effects: It shifts and rotates demand curves. The direction of the shift is ambiguous and highly dependent on the information design. Informing consumers that an LED saves 90% in annual energy costs increases LED demand, but showing them that 90% corresponds to an average of 11 euros raises demand for less efficient technologies. The rotation of the demand curve is unambiguous: information dramatically reduces both own-price and cross-price elasticities, which makes subsidies less effective. The uniform decrease in price elasticities suggests that consumers pay less attention to subsidies when information is provided. We structurally estimate that welfare-maximizing subsidies are up to 150% larger than the Pigouvian benchmark when combined with information.

Keywords: energy efficiency; field experiments; internality taxes; optimal taxation; nudges; information; behavioral public economics (search for similar items in EconPapers)
JEL-codes: D61 D83 H21 Q41 Q48 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2023-05
New Economics Papers: this item is included in nep-ene and nep-exp
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Published - published online in: Journal of the European Economic Association , jvae058, 21 January 2025

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