The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field

80 Pages Posted: 28 Apr 2020 Last revised: 7 Feb 2023

See all articles by Matthias Rodemeier

Matthias Rodemeier

Bocconi University

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

How much information should governments reveal to consumers if consumption choices have uninternalized consequences to society? How does an alternative tax policy compare to information disclosure? We develop a price theoretic model of information design that allows empiricists to identify the welfare effects of any arbitrary information policy. Based on this model, we run a natural field experiment in cooperation with a large European appliance retailer and randomize information regarding the financial benefits of energy-efficient household lighting among more than 640,000 subjects. We find that full information disclosure strongly decreases demand for energy efficiency, while partial information disclosure increases demand. More information reduces social welfare because the increase in consumer surplus is outweighed by the rise in environmental externalities. By randomizing product prices, we identify the optimal tax vector as an alternative policy and show that sizable taxes on energy-inefficient products yield larger welfare gains than any information policy. We also document an important policy interaction: information provision dramatically reduces attention to pecuniary incentives and thereby limits the effectiveness of taxes.

Keywords: persuasion, optimal taxation, internality taxes, field experiments, energy efficiency, behavioral public economics

JEL Classification: D61, D83, H21, Q41, Q48

Suggested Citation

Rodemeier, Matthias and Löschel, Andreas, The Welfare Effects of Persuasion and Taxation: Theory and Evidence from the Field (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-019, Available at SSRN: https://ssrn.com/abstract=3587339 or http://dx.doi.org/10.2139/ssrn.3587339

Matthias Rodemeier (Contact Author)

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://https://sites.google.com/view/matthiasrodemeier/

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
125
Abstract Views
860
Rank
332,867
PlumX Metrics