Cash for Caulkers Redux and Anticipating Behavioral Responses to the Embedded Incentives
This blog post on incentives for improving home energy efficiency caught my eye.
"HOME STAR would reimburse homeowners for a range of residential energy upgrades including air sealing, insulation, new light bulbs and household appliances. Homeowners would be eligible to receive up to $2,000 for implementing at least two upgrades from a list of qualifying measures, or up to $3,500 for at least four qualifying measures. Higher incentives would be available to homeowners who achieve energy savings of at least 20 percent. Projects that reduce energy consumption by 20 percent would be eligible for up to $4,000 in incentives, plus $1,500 for every additional 5 percent reduction in energy consumption."
Please read the last sentence carefully. To you econometrics nerds, what does this "at least 20 percent" mean? Suppose it is implemented in the following fashion; after you take the treatment and implement the "qualifying measures" you must hand over 1 month ex-post electricity bill. So, If your weatherization is over in April 2010 --- you would show your May 2010 electricity bill and if you consume 20% less then you used to (say relative to March 2010's electricity bill), then you get more $ from Obama.
If this is the implementation scheme then, rational people will increase their baseline consumption (to make it easier to achieve a 20% reduction) AND they will take steps to minimize their electricity consumption just after the treatment such as moving out of the house and living in a hotel for a week or two to guarantee that their home's electricity consumption falls by 20% during the evaluation month. Economists are always talking about manipulating the baseline but this is a case of manipulating the ex-post consumption so that you fool the DOE into thinking that you are now lean and green and merit a transfer. In truth, this household just wants free cash.
I would advise the Obama Administration to require 9 months of electricity bills and average them after the treatment to demonstrate a 20% reduction in electricity consumption.
"HOME STAR would reimburse homeowners for a range of residential energy upgrades including air sealing, insulation, new light bulbs and household appliances. Homeowners would be eligible to receive up to $2,000 for implementing at least two upgrades from a list of qualifying measures, or up to $3,500 for at least four qualifying measures. Higher incentives would be available to homeowners who achieve energy savings of at least 20 percent. Projects that reduce energy consumption by 20 percent would be eligible for up to $4,000 in incentives, plus $1,500 for every additional 5 percent reduction in energy consumption."
Please read the last sentence carefully. To you econometrics nerds, what does this "at least 20 percent" mean? Suppose it is implemented in the following fashion; after you take the treatment and implement the "qualifying measures" you must hand over 1 month ex-post electricity bill. So, If your weatherization is over in April 2010 --- you would show your May 2010 electricity bill and if you consume 20% less then you used to (say relative to March 2010's electricity bill), then you get more $ from Obama.
If this is the implementation scheme then, rational people will increase their baseline consumption (to make it easier to achieve a 20% reduction) AND they will take steps to minimize their electricity consumption just after the treatment such as moving out of the house and living in a hotel for a week or two to guarantee that their home's electricity consumption falls by 20% during the evaluation month. Economists are always talking about manipulating the baseline but this is a case of manipulating the ex-post consumption so that you fool the DOE into thinking that you are now lean and green and merit a transfer. In truth, this household just wants free cash.
I would advise the Obama Administration to require 9 months of electricity bills and average them after the treatment to demonstrate a 20% reduction in electricity consumption.
posted by Matthew Kahn at 5:34 PM
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