EI @ Haas Working Paper WP-244 Abstract
WP-244R: Koichiro Ito, "Asymmetric Incentives in Subsidies:
Evidence from a Large-Scale Electricity Rebate
Program" (Revised September 2014) Full Paper
Many countries use substantial public funds to subsidize reductions in negative externalities. Such policy designs create asymmetric incentives because increases in externalities remain unpriced. I investigate the implications of such policies by using a regression discontinuity design in California's electricity rebate program. Using household-level panel data, I find that the incentive produced precisely estimated zero treatment effects on energy conservation in coastal areas. In contrast, the rebate induced short-run and long-run consumption reductions in inland areas. Income, climate, and air conditioner saturation significantly drive the heterogeneity. Finally, I provide a cost-effectiveness analysis and investigate how to improve the policy design.