Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272768 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16141
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
How can information substitute or complement financial incentives such as Pigouvian subsidies? We answer this question in a large-scale field experiment that cross-randomizes energy efficiency subsidies with information about the financial savings of LED lighting. Information has two effects: It shifts and rotates demand curves. The direction of the shift is ambiguous and highly dependent on the information design. Informing consumers that an LED saves 90% in annual energy costs increases LED demand, but showing them that 90% corresponds to an average of 11 euros raises demand for less efficient technologies. The rotation of the demand curve is unambiguous: information dramatically reduces both own-price and cross-price elasticities, which makes subsidies less effective. The uniform decrease in price elasticities suggests that consumers pay less attention to subsidies when information is provided. We structurally estimate that welfare-maximizing subsidies are up to 150% larger than the Pigouvian benchmark when combined with information.
Subjects: 
information
nudges
optimal taxation
internality taxes
field experiments
energy efficiency
behavioral public economics
JEL: 
D61
D83
H21
Q41
Q48
Document Type: 
Working Paper

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