The Welfare Effects of Nudges: A Case Study of Energy Use Social Comparisons

By Hunt Allcott, Judd B. Kessler. American Economic Journal: Applied Economics, 2019

189 citations recorded by the source corpus.

“Nudge”-style interventions are often deemed successful if they generate large behavior change at low cost, but they are rarely subjected to full social welfare evaluations. We combine a field experiment with a simple theoretical framework to evaluate the welfare effects of one especially policy-relevant intervention, home energy social comparison reports. In our sample, the reports increase social welfare, although traditional evaluation approaches overstate gains because they ignore significant costs incurred by nudge recipients. Overall, home energy report welfare gains might be overstated by $620 million. We develop a prediction algorithm for optimal targeting; this approach would double the welfare gains. (JEL C93, D91, L95, Q41, Q48)

Subfields: Economics and Econometrics, Management, Monitoring, Policy and Law, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/b114e8cb197df363d675ebb3f8f311f9219eb5b5

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Citations in the corpus

A worldwide consensus on nudging? Not quite, but almost (2018, unknown): “A full evaluation of the welfare effects of nudges (Allcott & Kessler 2015), and of the underlying ethical issues (Kemmerer et al. 2017), would be necessary to decide whether and how to nudge.”
Social norms and pro-environmental behavior: A review of the evidence (2017, background): “Allcott and Kessler (2015) demonstrate that failing to fully incorporate the costs associated with behavioral interventions leads to an overestimation of their bene ﬁ ts. Morrisetal.”
Social Norms and Energy Conservation Beyond the US (2020, unknown): “In this section, we test the sensitivity of our conclusion concerning two aspects where our calculations might be overly pessimistic: persistency in electricity savings beyond the treatment year (Allcott and Rogers 2014) and the consideration of a broader set of benefits and cost for welfare analysi”
Nudging for Tax Compliance: A Meta-Analysis (2019, unknown): “Although, typically these letters are interpreted of being virtually costless, Allcott and Kessler (2019) argues that nudges entail significant costs for the nudge recipients and shows that the failure to take into account these costs overstates the effects of nudges on social welfare.”
Peer Effects in Product Adoption (2019, unknown): “In the developed world, peer effects have been shown to affect the adoption of new technologies such as solar panels (e.g., Bollinger and Gillingham, 2012; Allcott and Kessler, 2019).”
Realizing the potential of digital development: The case of agricultural advice (2019, background): “Too many messages could annoy people and make them feel uncomfortable (82).”