Thursday, January 16, 2014

No need to ban incandescent lightbulbs

It is sometimes difficult for a shopper to understand all the consequences of purchasing choices. Take lightbulbs, for example. The variety in price is large, and so is the variety in expected life or energy consumption. When more efficient lightbulbs came on the market, they were massively more expensive than existing bulbs, yet in the long run worth it thanks to much lower energy consumption. Consumers did not seem to understand that, along with what this entails for pollution, hence the old bulbs were banned. Was this really necessary?

Hunt Allcott and Dmitry Taubinsky exploit two randomized experiments to look into this. The first is computer based and gives participants a budget and different information about lightbulbs. The second is a field experiment at a home improvement retailer where shoppers where given different information and discount coupons. They find that people do not undervalue energy costs that much, meaning that only minor, if any, subsidies were necessary to win them for next-generation lightbulbs. Once more, it looks like a ban is outdone by the nudging that the price mechanism can do with appropriate subsidies or taxes. They also find that there is a large fraction of shoppers that wants to stick with incandescent lightbulbs, indicating a substantial welfare loss from a ban that is similar to standard rationing. One more piece of evidence that bans need to be banned.

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