The welfare effects of persuasion and taxation: Theory and evidence from the field

Matthias Rodemeier and Andreas Löschel

No 112, CAWM Discussion Papers from University of Münster, Münster Center for Economic Policy (MEP)

Abstract: How much information should governments reveal to consumers if consumption choices have uninternalized consequences to society? How does an alternative tax policy compare to information disclosure? We develop a price theoretic model of information design that allows empiricists to identify the welfare effects of any arbitrary information policy. Based on this model, we run a natural field experiment in cooperation with a large European appliance retailer and randomize information regarding the financial benefits of energy-efficient household lighting among more than 640,000 subjects. We find that full information disclosure strongly decreases demand for energy efficiency, while partial information disclosure increases demand. More information reduces social welfare because the increase in consumer surplus is outweighed by the rise in environmental externalities. By randomizing product prices, we identify the optimal tax vector as an alternative policy and show that sizable taxes on energy-inefficient products yield larger welfare gains than any information policy. We also document an important policy interaction: information provision dramatically reduces attention to pecuniary incentives and thereby limits the effectiveness of taxes.

Keywords: persuasion; optimal taxation; internality taxes; field experiments; energy efficiency; behavioral public economics (search for similar items in EconPapers)
JEL-codes: D61 D83 H21 Q41 Q48 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp, nep-gen and nep-pub
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field (2020)
Working Paper: The welfare effects of persuasion and taxation: Theory and evidence from the field (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cawmdp:112

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