Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program

Koichiro Ito

No 19485, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many countries use substantial public funds to subsidize reductions in negative externalities. However, such subsidies create asymmetric incentives because increases in externalities remain unpriced. This paper examines implications of such asymmetric subsidy incentives by using a regression discontinuity design in California's electricity rebate program that provided a financial reward for energy conservation. Using household-level panel data from administrative records, I find precisely-estimated zero causal effects in coastal areas. In contrast, the incentive produced a 5% consumption reduction in inland areas. Income and climate conditions significantly drive the heterogeneity. Asymmetric subsidy structures weaken incentives because consumers far from the rebate target show little response. The overall program cost is 17.5 cents per kWh reduction and $390 per ton of carbon dioxide reduction, which is unlikely to be cost-effective for a reasonable range of the social marginal cost of electricity.

JEL-codes: L11 L51 L94 L98 Q41 Q48 Q58 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
Note: EEE IO PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Koichiro Ito, 2015. "Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 209-37, August.

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