Environmental externalities and free-riding in the household

Seema Jayachandran, Kelsey Jack and Sarojini Rao

No 12558, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Water use and electricity use, which generate negative environmental externalities, are susceptible to a second externality problem: with household-level billing, each person enjoys private benefits of consumption but shares the cost with other household members. If individual usage is imperfectly observed (as is typical for water and electricity) and family members are imperfectly altruistic toward one another, households overconsume even from their own perspective. We develop this argument and test its prediction that intrahousehold free-riding dampens price sensitivity. We do so in the context of water use in urban Zambia by combining billing records, randomized price variation, and a lab-experimental measure of intrahousehold altruism. We find that more altruistic households are considerably more price sensitive than are less altruistic households. Our results imply that the socially optimal price needs to be set to correct both the environmental externality and also the intrahousehold externality.

Keywords: Environmental externalities; Water use; Pigouvian pricing; Moral hazard; Intrahousehold decision-making (search for similar items in EconPapers)
JEL-codes: O10 Q5 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-env, nep-exp, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP12558 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Environmental externalities and free-riding in the household (2024)
Working Paper: Environmental Externalities and Free-Riding in the Household (2023)
Working Paper: Environmental Externalities and Free-riding in the Household (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12558

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12558

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().