Tagging and Targeting of Energy Efficiency Subsidies
American Economic Review
vol. 105,
no. 5, May 2015
(pp. 187-91)
Abstract
A corrective tax or subsidy is "well-targeted" if it primarily affects choices that are more distorted by market failures. Energy efficiency subsidies are designed to correct multiple distortions: externalities, credit constraints, "landlord-tenant" information asymmetries, imperfect information, and inattention. We show that three important energy efficiency subsidies are primarily taken up by consumers who are wealthier, own their own homes, and are more informed about and attentive to energy costs. This suggests that these subsidies are poorly targeted at the market failures they were designed to address. However, we show that "tagging" can lead to large efficiency gains.Citation
Allcott, Hunt, Christopher Knittel, and Dmitry Taubinsky. 2015. "Tagging and Targeting of Energy Efficiency Subsidies." American Economic Review, 105 (5): 187-91. DOI: 10.1257/aer.p20151008Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy