Inform Me When It Matters: Cost Salience, Energy Consumption, and Efficiency Investments

43 Pages Posted: 4 Sep 2020 Last revised: 7 May 2021

Abstract

Effective attention to information may play a prominent role in consumer choice for energy-intensive services and it may simply be a function of receiving timely information when consumption takes place. This paper investigates whether and why the timing of utility bills leads to salience bias in heat energy consumption. In Germany, the 12-month billing period varies across buildings with a significant share of buildings receiving bills during the summer months, when the salience of heating costs is absent or low. I exploit this large-scale natural experiment in utility billing cycles at the building level to identify the salience effect of costs on energy consumption and the underlying heterogeneity in the average treatment effect. I find new evidence for consumer inattention to energy costs: consumers that are billed for heating during off-winter months demand more heat energy annually. Results suggest that households are paying attention to their heating costs in the first three months of the 12-month billing period. As a result, bills immediately before the winter heating season are most effective, allowing ample opportunity to adjust consumption. I show that salience bias in consumption is persistent and pervasive – affecting households in all regions and building/technology type. Engaging energy users with salient bills, not necessarily more frequent, has the potential to reduce energy consumption in the residential sector significantly. This paper further examines whether enduring differences in consumer inattention to energy costs had a long-run impact on thermal efficiency investments by building owners – with implications for the energy efficiency gap.

Keywords: Heating bills, natural experiment, cost salience, consumer inattention, energy consumption, energy efficiency

JEL Classification: D12, Q41, Q48

Suggested Citation

Singhal, Puja, Inform Me When It Matters: Cost Salience, Energy Consumption, and Efficiency Investments. DIW Berlin Discussion Paper No. 1891, Available at SSRN: https://ssrn.com/abstract=3686418 or http://dx.doi.org/10.2139/ssrn.3686418
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