Electricity Conservation: the Response to Financial Rewards

How do households respond to repeated financial rewards for achieving electricity conservation targets?

Dr Alastair Fraser (School of Economics, University of Sydney) presents a paper looking at how households respond to repeated financial rewards for achieving electricity conservation targets.

In the paper, Dr Alastair Fraser tracked households’ extensive margin program participation and intensive margin electricity use across successive conservation challenges offered by a large Canadian electrical utility company, BC Hydro.

Using two complementary empirical strategies, Alastair found that participation in an energy conservation challenge caused households to reduce their electricity use but these reductions rebound close to pre-program levels after program participation ends. Furthermore, households’ decisions whether to remain in the program were sensitive to their success or failure in a conservation challenge but, conditional on their success, did not depend on their reductions in electricity use.

As a result, households made the opposite decision from what the program design incentivizes; households facing an increased likelihood of achieving their next conservation target were less likely to re-enrol and attempt another conservation challenge. Importantly for designing general incentive programs, this suggests that households use simple heuristics in making decisions rather than incorporating the full amount of information that is readily available to them.

Dr Alastair Fraser is an applied micro-economist with research interests in Environmental Economics, Energy Economics, and International Trade. He has degrees in physics and economics and a Ph.D. in Economics from the University of British Columbia, and has just moved to Sydney University from Canada.

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