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The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies

Author

Listed:
  • Houde, Sebastien

    (University of Maryland)

  • Aldy, Joseph E.

    (Harvard University)

Abstract
The behavioral responses to taxes and subsidies are often subject to various behavioral biases and transaction costs—what we define as “microfrictions.†We develop a theoretical framework to show how these microfrictions—and their heterogeneity across the population and policy instruments—affect the design of Pigouvian policies. Standard Pigouvian pricing still holds with transaction costs, but requires adjustment with behavioral biases. We use transaction-level data from the US appliance market to estimate the heterogeneous behavioral responses to an array of energy fiscal policies and to quantify microfrictions. We then assess optimal fiscal policies and find that it is rarely optimal to couple a Pigouvian tax on energy with an investment subsidy in this context. We also find that energy labels—intended to increase the salience of energy information—can interact in perverse ways with both taxes and subsidies.

Suggested Citation

  • Houde, Sebastien & Aldy, Joseph E., 2017. "The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies," Working Paper Series rwp17-047, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp17-047
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    Cited by:

    1. Lang, Ghislaine & Farsi, Mehdi & Lanz, Bruno & Weber, Sylvain, 2021. "Energy efficiency and heating technology investments: Manipulating financial information in a discrete choice experiment," Resource and Energy Economics, Elsevier, vol. 64(C).
    2. Rodemeier, Matthias & Löschel, Andreas, 2023. "Information Nudges, Subsidies, and Crowding Out of Attention: Field Evidence from Energy Efficiency Investments," IZA Discussion Papers 16141, Institute of Labor Economics (IZA).
    3. Hammerle, Mara & Burke, Paul J., 2022. "From natural gas to electric appliances: Energy use and emissions implications in Australian homes," Energy Economics, Elsevier, vol. 110(C).
    4. Matthias Rodemeier & Andreas Löschel, 2020. "The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field," CESifo Working Paper Series 8259, CESifo.
    5. Huse, Cristian & Lucinda, Claudio & Cardoso, Andre Ribeiro, 2020. "Consumer response to energy label policies: Evidence from the Brazilian energy label program," Energy Policy, Elsevier, vol. 138(C).
    6. Lang, Ghislaine & Lanz, Bruno, 2021. "Energy efficiency, information, and the acceptability of rent increases: A survey experiment with tenants," Energy Economics, Elsevier, vol. 95(C).
    7. Cristian Huse & Claudio Lucinda, Andre Ribeiro, 2019. "The Impact of Incentives on the Energy Paradox: Evidence from Micro Data," Working Papers, Department of Economics 2019_39, University of São Paulo (FEA-USP), revised 16 Oct 2019.

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    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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