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Policy Labels and Investment Decision-making

Author

Listed:
  • Ian Lange

    () (Division of Economics and Business, Colorado School of Mines)

  • Mirko Moro

    (Division of Economics, University of Stirling, Scotland, UK)

  • Mohammad Mahbubur Rahman

    (Division of Economics, University of Stirling, Scotland, UK)

Abstract

Much attention in recent years has turned to the potential of behavioural insights to improve the performance of government policy. One behavioural concept of interest is the effect of a cash transfer label on how the transfer is spent. The Winter Fuel Payment (WFP) is a labelled cash transfer to offset the costs of keeping older households warm in the winter. Previous research has shown that households spend a higher proportion of the WFP on energy expenditures due to its label (Beatty et al., 2011). If households interpret the WFP as money for their energy bills, it may reduce their willingness to undertake investments which help achieving the same goal, such as the adoption of renewable energy technologies. In this paper we show that the WFP has distortionary effects on the renewable technology market. Using the sharp eligibility criteria of the WFP in a Regression Discontinuity Design, this analysis finds a reduction in the propensity to install renewable energy technologies of around 2.7 percentage points due to the WFP. This is a considerable number. It implies that 62% of households (whose oldest member turns 60) would have invested in renewable energy but refrain to do so after receiving the WFP. This analysis suggests that the labelling effect spreads to products related to the labelled good. In this case, households use too much energy from sources which generate pollution and too little from relatively cleaner technologies.

Suggested Citation

  • Ian Lange & Mirko Moro & Mohammad Mahbubur Rahman, 2014. "Policy Labels and Investment Decision-making," Working Papers 2014-02, Colorado School of Mines, Division of Economics and Business.
  • Handle: RePEc:mns:wpaper:wp201402
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    File URL: http://econbus-papers.mines.edu/working-papers/wp201402.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Winter Fuel Payment; Regression Discontinuity; Renewable energy;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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