By Anant Sudarshan
At every level of government—from a small rural community in the U.S. to the entire European Union—there’s one common energy policy that everyone seems to agree on: energy efficiency. Theoretically, it has its benefits. Saving energy saves money. It also reduces pollution and the emissions that cause climate change. And, in developing countries where energy access is a major problem, it conserves more energy for those who have none.
Yet, for all the appeal of energy efficiency as a goal, more and more economists are finding that energy efficiency policies don’t actually work all that well. Take my colleague Michael Greenstone. He and his coauthors studied an energy efficiency program in Michigan and found the costs to implement the program greatly exceeded the benefits. He’s not alone. A growing field of research is focused on assessing energy efficiency policies, and is finding similar discouraging results (see more here). The point in all this research is not to denounce the goals of energy efficiency and energy conservation. Rather, the studies demonstrate that policies must be tested before being widely implemented.
Work in the United States continues to test those policies and is showing that when households are given information that compares their electricity use to that of their peers, they tend to reduce consumption. But we know little about how this behavior translates to the developing world, with different cultural norms, incomes and consumption levels. That’s where a new study of mine comes in.
I found that when Indian households are given information that compares their electricity use to that of their peers, combined with tips on how to save, they reduce their electricity use by as much as 7 percent. Curiously, however, if these comparisons are complemented with financial rewards—a sort of cherry on top—they don’t respond at all. That result seems counter-intuitive, and is not good news for policymakers tempted to mix and match monetary incentives and behavioral cues. Why? One clue may be provided by research describing how monetary contracts create issues of trust because the recipient will often begin second guessing the motivations behind the contract…