Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program / Koichiro Ito.

Format:

Book

Author/Creator:

Ito, Koichiro.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19485.

NBER working paper series no. w19485

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Asymmetric Incentives in Subsidies

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

September 2013.