Energy conservation and health risk reduction: an experimental investigation of punishing vs. rewarding incentives

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Combustion of fossil fuels is the major source of energy in the United States and around the world. The combustion causes emission of greenhouse gases and particle pollution, which leads to health hazards. As people become increasingly conscious of their carbon footprints, they may choose to reduce their energy consumption using a variety of energy-saving technologies. We design a context-rich incentivized decision-making experiment in a laboratory set-up. The decision scenario has been enriched with elements of a public good, risk, and intertemporal discounting. Each subject represents a household and decides how much to spend on energy-saving technologies that can reduce future energy costs and emissions. The reduction in emission decreases health risk and medical costs for an individual and everyone else in the group. Discounting is represented by the ability to save, with interest. Each subject plays three sections (baseline, a treatment, and a repeated baseline). Each section had 30 rounds. The treatment has a threshold public good feature of energy-savings. The emission tax level depends on the aggregate energy-savings. Subjects exhibit significant learning effect and tend to increase adoption rate of energy-saving technologies over time. The adoption rate significantly improves when subjects can reduce their emission tax obligations by decreasing their energy consumption. There is no evidence of significant change in behavior when subjects learn energy-saving choices made by other group members.

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Environmental Economics and Policy Studies

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