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

Matthias Rodemeier and Andreas Löschel

Journal of the European Economic Association, 2025, vol. 23, issue 4, 1397-1430

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 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 can be 200% larger than the Pigouvian benchmark when combined with information.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:23:y:2025:i:4:p:1397-1430.

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