The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field (first author, with Andreas Löschel)

[NBER SI 2020; CESifo Working Paper No. 8259; Pre-registration]

Abstract: How much information should governments reveal to consumers if consumption choices have uninternalized consequences to society? How does an alternative tax policy compare to information disclosure? We develop a price theoretic model of information design that allows empiricists to identify the welfare effects of any arbitrary information policy. Based on this model, we run a natural field experiment in cooperation with a large European appliance retailer and randomize information regarding the financial benefits of energy-efficient household lighting among more than 640,000 subjects. We find that more informative signals strongly decrease demand for energy efficiency, while less informative signals increase demand. More information reduces social welfare because the increase in consumer surplus is outweighed by the rise in environmental externalities. By randomizing product prices, we identify the optimal tax vector as an alternative policy and show that sizable taxes on energy-inefficient products yield larger welfare gains than any information policy. We also document an important policy interaction: information provision dramatically reduces attention to pecuniary incentives and thereby limits the effectiveness of taxes.

When Nudges Fail to Scale: Field Experimental Evidence from Goal Setting on Mobile Phones (with Andreas Löschel and Madeline Werthschulte)

[CESifo Working Paper No. 8485; Pre-registration]

Abstract: Non-pecuniary incentives motivated by insights from psychology (“nudges”) have been shown to be effective tools to change behavior in a variety of fields. An often unanswered question relevant for public policy is whether these promising interventions can be scaled up. In cooperation with a large public utility in Germany, we develop an energy savings application for mobile phones that can be used by the majority of the population. The app randomizes a goal-setting nudge prompting users to set themselves energy consumption targets. The roll-out of the app is promoted by a mass-marketing campaign and large financial incentives. Results document low demand for the energy app in the general population and a tightly estimated null effect of the nudge on electricity consumption among app users. A likely mechanism of the null effect is unfavorable self-selection into the app: users are characterized by an already low baseline energy consumption and exhibit none of the behavioral biases that typically explain why goal setting affects behavior. We also find that the nudge significantly decreases the likelihood to use the app over time. Structural estimates imply that the average user is willing to pay 7.41 EUR to avoid the nudge and the intervention would yield substantial welfare losses if implemented nationwide.