The Impact of Incentives on the Energy Paradox: Evidence from Micro Data

We examine the effects on the valuation of energy efficiency of PERCEE, the largest temporary electricity savings program worldwide. Using data from a representative sample of Brazilian households, we estimate a structural model of appliance choice accounting for heterogeneity in prices and operating costs. We document that it is only through incentives introduced by the PERCEE program that one cannot reject the null of correct valuation of energy costs against the two-sided alternative. Moreover, once PERCEE ends, households essentially revert to pre-program valuations, suggesting the lack of long-run effects of the program. Despite increases in the valuation of energy costs, the heterogeneous responses imply that monetary savings and the social benefit of carbon savings are concentrated among few consumers. Finally, we exploit PERCEE's design to decompose the energy efficiency gap into incentives and information components to find that the former is about twice as large as the latter.