Casting light on energy efficiency: evidence on consumer inattention and imperfect information

ABSTRACT

We investigate consumer inattention and imperfect information regarding the financial benefits of energy-efficient lighting using a randomized controlled trial with 1084 observations. Results suggest that subjects generally know about cost savings of light-emitting diode (LED) bulbs – the central lighting technology of the future – but largely underestimate the magnitude of these savings. As a result, stated willingness-to-pay for an LED bulb increases on average by 2.53€ through the provision of information on expected lifetime costs. Additional evidence hints at further consumer confusion about attribute differences between lighting technologies.

KEYWORDS:

• Imperfect information
• inattention
• energy efficiency gap
• experimental economics

JEL CLASSIFICATION:

• D03
• D12
• D83
• Q41
• Q48

Acknowledgements

We would like to thank the German online retailer Lampenwelt GmbH for financing the lottery among participants. We also thank Jörg Lingens and Madeline Werthschulte for highly valuable contributions, and Martin Skala for his organizational support. We are grateful to Dmitry Taubinsky for providing us with supplementary material of the related experiment in Allcott and Taubinsky (2015).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For an overview on potential causes of a so-called ‘energy efficiency gap’ see Gerarden, Newell, and Stavins (2015).

² For instance, if the consumer purchased the LED at 3.30€ but switches to the incandescent as soon as the LED costs 4.30€, we define her relative WTP for the LED as.

³ Of the entire sample, 152 subjects preferred the same bulb at any given price and had to type in its minimum/maximum WTP for the LED in an additional field (Figure B8). Given that these specific subjects were able to state an arbitrarily small/large WTP, we analyse this subsample carefully. If we include these subjects, the average treatment effect increases to 7.82€. However, the median treatment effect only increases to 3.27€, indicating that this drastic increase in the average treatment effect is driven by a few subjects who reported an exceptionally large WTP.

Additional information

Funding

This work was supported by the Lampenwelt GmbH.