Working Paper: NBER ID: w19485
Authors: Koichiro Ito
Abstract: Many countries use substantial public funds to subsidize reductions in negative externalities. However, such subsidies create asymmetric incentives because increases in externalities remain unpriced. This paper examines implications of such asymmetric subsidy incentives by using a regression discontinuity design in California's electricity rebate program that provided a financial reward for energy conservation. Using household-level panel data from administrative records, I find precisely-estimated zero causal effects in coastal areas. In contrast, the incentive produced a 5% consumption reduction in inland areas. Income and climate conditions significantly drive the heterogeneity. Asymmetric subsidy structures weaken incentives because consumers far from the rebate target show little response. The overall program cost is 17.5 cents per kWh reduction and $390 per ton of carbon dioxide reduction, which is unlikely to be cost-effective for a reasonable range of the social marginal cost of electricity.
Keywords: subsidy; electricity rebate; asymmetric incentives; regression discontinuity design; energy conservation
JEL Codes: L11; L51; L94; L98; Q41; Q48; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income and climate conditions (Q54) | treatment effects (C22) |
| giving-up effect (J26) | consumers' perception of rebate attainability (D12) |
| overall program cost (H43) | cost-effectiveness (D61) |
| California electricity rebate program (Q48) | household electricity consumption (D10) |
| California electricity rebate program (Q48) | coastal areas household electricity consumption (R22) |