The Tragedy of the Common Heating Bill

Abstract

We study how group size influences free-riding on shared resources. We leverage data from buildings that initially lacked apartment-specific heat meters, such that tenants had to share a common heating bill. We analyze the staggered rollout of a corrective technology, "submetering," across buildings of different sizes. Our estimates suggest that individual billing reduced heating expenses by 17%, on average. Machine learning techniques reveal substantial effect heterogeneity, consistent with coordination failure in larger buildings and strategic exit of free-riders.  While submetering improves welfare for most buildings, tenants in smaller buildings show minimal response, both in terms of consumption and price elasticity. We also show that households who share a common heating bill are surprisingly price elastic, implying that only a minority exploits the free-riding incentive. We argue that our results can be explained by "schmeduling," inattention to the billing regime, and pro-social behavior.

Keywords: Free-riding, submetering, individual billing, heating energy, tragedy of the commons, welfare