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The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field

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  • Matthias Rodemeier
  • Andreas Löschel

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.

Suggested Citation

  • Matthias Rodemeier & Andreas Löschel, 2020. "The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field," CESifo Working Paper Series 8259, CESifo.
    • Handle: RePEc:ces:ceswps:_8259
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    References listed on IDEAS

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    6. Hunt Allcott & Benjamin B Lockwood & Dmitry Taubinsky, 2019. "Regressive Sin Taxes, with an Application to the Optimal Soda Tax," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1557-1626.
    7. Hunt Allcott & Christopher Knittel, 2019. "Are Consumers Poorly Informed about Fuel Economy? Evidence from Two Experiments," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 1-37, February.
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    Cited by:

    1. Bartels, Lara & Werthschulte, Madeline, 2023. ""More bang for the buck"? Evidence on the effectiveness of an energy efficiency subsidy," ZEW Discussion Papers 23-022, ZEW - Leibniz Centre for European Economic Research.
    2. Boogen, Nina & Daminato, Claudio & Filippini, Massimo & Obrist, Adrian, 2022. "Can information about energy costs affect consumers’ choices? Evidence from a field experiment☆," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 568-588.
    3. Bartels, Lara & Werthschulte, Madeline, 2022. "More than just a Price Decrease: Field Experimental Evidence on the Mechanisms of an Energy Efficiency Subsidy," VfS Annual Conference 2022 (Basel): Big Data in Economics 264091, Verein für Socialpolitik / German Economic Association.
    4. Giovanna d’Adda & Yu Gao & Massimo Tavoni, 2022. "A randomized trial of energy cost information provision alongside energy-efficiency classes for refrigerator purchases," Nature Energy, Nature, vol. 7(4), pages 360-368, April.

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    More about this item

    Keywords

    persuasion; 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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