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‘More Bang for the Buck’? Experimental Evidence on the Mechanisms of an Energy Efficiency Subsidy

Author

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  • Lara Bartels

    (Max Planck Institute for Research on Collective Goods
    ZEW - Leibniz Centre for European Economic Research)

  • Madeline Werthschulte

    (Vrije Universiteit
    ZEW - Leibniz Centre for European Economic Research)

Abstract

Environmental subsidies are a popular public finance instrument used to reduce carbon emissions. However, there is little evidence on the mechanisms underlying the demand response to the introduction of a subsidy. We use a framed field experiment to disentangle the relative importance of the price and non-price effects implicit in a subsidy encouraging an energy-efficiency investment. In the experiment, participants decide whether or not to purchase a low-flow showerhead and are either confronted with the introduction of a subsidy or a same-sized price decrease. We find a demand increase of about 3 percentage points when the price decreases and a significantly larger demand increase of about 9 percentage points when the subsidy is introduced. An analysis of the underlying channels rules out changes in beliefs and social norm perceptions. Positive spill-over effects of the subsidy on other pro-environmental behaviors rather suggest that the non-price effect is explained by a crowding in of intrinsic motivation.

Suggested Citation

  • Lara Bartels & Madeline Werthschulte, 2025. "‘More Bang for the Buck’? Experimental Evidence on the Mechanisms of an Energy Efficiency Subsidy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(3), pages 631-654, March.
    • Handle: RePEc:kap:enreec:v:88:y:2025:i:3:d:10.1007_s10640-024-00942-2
    DOI: 10.1007/s10640-024-00942-2
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    More about this item

    Keywords

    Behavioral public economics; Energy efficiency; Field experiment; Subsidies;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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