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Premium Programs for Energy Conservation: Evidence from a Randomized Controlled Experiment

Author

Listed:
  • Andreas Gerster

    (Johannes-Gutenberg University, Germany)

  • Manuel Frondel

    (RWI – Leibniz-Institut für Wirtschaftsforschung, Germany)

  • Kathrin Kaestner

    (RWI – Leibniz-Institut für Wirtschaftsforschung, Germany)

  • Michael Pahle

    (Potsdam Institute for Climate Impact Research, Germany)

  • Puja Singhal

    (Potsdam Institute for Climate Impact Research, Germany)

Abstract

Premium programs are seen as a politically attractive substitute for Pigouvian taxes to establish incentives for energy conservation, particularly when energy prices are high. Using an incentive-compatible survey experiment with almost 4,500 participants, this paper analyzes consumers’ uptake of a savings premium paid when a household reaches a pre-defined energy conservation target. We find that the financial benefit of a savings premium motivates only 11 percent of households to opt for it. 42 percent of households never take part, irrespective of generous premium payments of up to 1,500 euros. The remaining households prefer the conditional payment under the premium program to an equally large unconditional amount, which indicates that they use the premium program as a commitment device. Our findings challenge the view that premium programs and taxes are equivalent resource conservation policies. In particular, they imply that generous premium programs will be largely ineffective.

Suggested Citation

  • Andreas Gerster & Manuel Frondel & Kathrin Kaestner & Michael Pahle & Puja Singhal, 2025. "Premium Programs for Energy Conservation: Evidence from a Randomized Controlled Experiment," Working Papers 2504, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    • Handle: RePEc:jgu:wpaper:2504
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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