The welfare effects of persuasion and taxation: theory and evidence from the field


Rodemeier, Matthias ; Löschel, Andreas


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URL: https://madoc.bib.uni-mannheim.de/55445
URN: urn:nbn:de:bsz:180-madoc-554455
Document Type: Working paper
Year of publication: 2020
The title of a journal, publication series: ZEW Discussion Papers
Volume: 20-019
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D61 , D83 , H21 , Q41 , Q48,
Keywords (English): Persuasion , optimal taxation , internality taxes , field experiments , energy efficiency , behavioral public economics
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 full information disclosure strongly decreases demand for energy efficiency, while partial information disclosure increases 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.

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Rodemeier, Matthias ; Löschel, Andreas (2020) The welfare effects of persuasion and taxation: theory and evidence from the field. Open Access ZEW Discussion Papers Mannheim 20-019 [Working paper]
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