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

Author

Listed:
  • Rodemeier, Matthias

    (Bocconi University)

  • Löschel, Andreas

    (Ruhr University Bochum)

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.

Suggested Citation

  • Rodemeier, Matthias & Löschel, Andreas, 2023. "Information Nudges, Subsidies, and Crowding Out of Attention: Field Evidence from Energy Efficiency Investments," IZA Discussion Papers 16141, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16141
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    References listed on IDEAS

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    More about this item

    Keywords

    information; nudges; optimal taxation; internality taxes; field experiments; energy efficiency; behavioral public economics;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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