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

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  • Koichiro Ito

Abstract

Many countries use substantial public funds to subsidize reductions in negative externalities. Such policy designs create asymmetric incentives because increases in externalities remain unpriced. I investigate the implications of such policies by using a regression discontinuity design in California's electricity rebate program. Using household-level panel data, I find that the incentive produced precisely estimated zero treatment effects on energy conservation in coastal areas. In contrast, the rebate induced short-run and long-run consumption reductions in inland areas. Income, climate, and air conditioner saturation significantly drive the heterogeneity. Finally, I provide a cost-effectiveness analysis and investigate how to improve the policy design. (JEL D12, D62, H76, L94, L98, Q48)

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  • 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 209-237, August.
  • Handle: RePEc:aea:aejpol:v:7:y:2015:i:3:p:209-37
    Note: DOI: 10.1257/pol.20130397
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    2. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    3. Chia-Wen Chen & Wei-Min Hu & Christopher R. Knittel, 2017. "Subsidizing Fuel Efficient Cars: Evidence from China's Automobile Industry," NBER Working Papers 23045, National Bureau of Economic Research, Inc.
    4. Koichiro Ito & Shuang Zhang, 2020. "Reforming Inefficient Energy Pricing: Evidence from China," NBER Working Papers 26853, National Bureau of Economic Research, Inc.
    5. Chiang, Harold D. & Hsu, Yu-Chin & Sasaki, Yuya, 2019. "Robust uniform inference for quantile treatment effects in regression discontinuity designs," Journal of Econometrics, Elsevier, vol. 211(2), pages 589-618.
    6. Hiroko Okajima & Shigeharu Okajima & Kenji Takeuchi, 2019. "Corporate responses to public pressures and price increases:Evidence from Japan's electricity crisis," Discussion Papers 1908, Graduate School of Economics, Kobe University.
    7. John A. List & Robert D. Metcalfe & Michael K. Price & Florian Rundhammer, 2017. "Harnessing Policy Complementarities to Conserve Energy: Evidence from a Natural Field Experiment," NBER Working Papers 23355, National Bureau of Economic Research, Inc.
    8. Sudarshan, Anant, 2017. "Nudges in the marketplace: The response of household electricity consumption to information and monetary incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 320-335.
    9. B. Boutchenik & R. Lardeux, 2020. "The Take-Up of Unemployment Benefit Extensions," Documents de Travail de l'Insee - INSEE Working Papers g2020-02, Institut National de la Statistique et des Etudes Economiques.
    10. Chi L. Ta, 2021. "Theoretical and Empirical Evaluation of a Competitive Energy Rebate Program," CESifo Working Paper Series 8948, CESifo.
    11. Taylor, Rebecca L.C., 2019. "Bag leakage: The effect of disposable carryout bag regulations on unregulated bags," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 254-271.
    12. Boomhower, Judson & Davis, Lucas W., 2014. "A credible approach for measuring inframarginal participation in energy efficiency programs," Journal of Public Economics, Elsevier, vol. 113(C), pages 67-79.
    13. Louis-Gaëtan Giraudet & Sébastien Houde, 2015. "Double Moral Hazard and the Energy Efficiency Gap," Working Papers hal-01260907, HAL.
    14. Jianqing Ruan & Qingwen Cai & Songqing Jin, 2021. "Impact of COVID‐19 and Nationwide Lockdowns on Vegetable Prices: Evidence from Wholesale Markets in China," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1574-1594, October.
    15. Yu-Chin Hsu & Chung-Ming Kuan & Giorgio Teng-Yu Lo, 2017. "Quantile Treatment Effects in Regression Discontinuity Designs with Covariates," IEAS Working Paper : academic research 17-A009, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    16. Louis-Gaëtan Giraudet & S. Houde, 2013. "Double moral hazard and the energy efficiency gap," Post-Print hal-00799725, HAL.
    17. Andor, Mark A. & Gerster, Andreas & Peters, Jörg & Schmidt, Christoph M., 2020. "Social Norms and Energy Conservation Beyond the US," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    18. Ram Fishman & Upmanu Lall & Vijay Modi & Nikunj Parekh, 2016. "Can Electricity Pricing Save India’s Groundwater? Field Evidence from a Novel Policy Mechanism in Gujarat," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(4), pages 819-855.
    19. Louis-Gaëtan Giraudet & Sébastien Houde, 2014. "Double moral hazard and the energy efficiency gap," Working Papers hal-01016109, HAL.
    20. Spandagos, Constantine & Baark, Erik & Ng, Tze Ling & Yarime, Masaru, 2021. "Social influence and economic intervention policies to save energy at home: Critical questions for the new decade and evidence from air-condition use," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    21. Grimm, Veronika & Orlinskaya, Galina & Schewe, Lars & Schmidt, Martin & Zöttl, Gregor, 2021. "Optimal design of retailer-prosumer electricity tariffs using bilevel optimization," Omega, Elsevier, vol. 102(C).
    22. Andor, Mark A. & Fels, Katja M., 2018. "Behavioral Economics and Energy Conservation – A Systematic Review of Non-price Interventions and Their Causal Effects," Ecological Economics, Elsevier, vol. 148(C), pages 178-210.
    23. Yu‐Chin Hsu & Shu Shen, 2021. "Testing monotonicity of conditional treatment effects under regression discontinuity designs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(3), pages 346-366, April.
    24. Ta, Chi L., 2020. "Does Competition for Energy Conservation Rebates Work?," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304245, Agricultural and Applied Economics Association.
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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