Choosing Who Chooses: Selection-Driven Targeting in Energy Rebate Programs
(with Takanori Ida, Takunori Ishihara, Daido Kido, Toru Kitagawa, Shosei Sakaguchi, Shusaku Sasaki).
Econometrica, conditionally accepted (NBER Working Paper #30469).
Abstract | Paper | NBER WP
We develop an optimal policy assignment rule that integrates two distinctive approaches commonly used in economics---targeting by observables and targeting through self-selection. Our method can be used with experimental or quasi-experimental data to identify who should be treated, be untreated, and self-select to achieve a policymaker's objective. Applying this method to a randomized controlled trial on a residential energy rebate program, we find that targeting that optimally exploits both observable data and self-selection outperforms conventional targeting for a utilitarian welfare function as well as welfare functions that balance the equity-efficiency trade-off. We highlight that the Local Average Treatment Effect (LATE) framework (Imbens and Angrist, 1994) can be used to investigate the mechanism behind our approach. By estimating several key LATEs based on the random variation created by our experiment, we demonstrate how our method allows policymakers to identify whose self-selection would be valuable and harmful to social welfare.
International Spillover Effects of Air Pollution: Evidence from Mortality and Health Data
Review of Economics and Statistics, forthcoming. (with Seonmin Will Heo and Rao Kotamarthi)
Abstract | Paper | NBER WP | BFI WP
International transboundary air pollution poses a significant threat to the global economy and health, yet conventional economic analyses seldom incorporate this phenomenon. By integrating transboundary particle trajectory data with individual-level mortality and emergency department visit records, we find that air pollution from China significantly increases mortality and morbidity in South Korea. We evaluate the spillover benefits of recent Chinese environmental regulations and find that a country’s environmental policies could generate substantial hidden benefits for neighboring countries. Finally, we demonstrate that China’s potentially strategic reductions in pollution could have undermined these benefits, highlighting the implications for additional gains through Coasian bargaining.
Do Consumers Distinguish Fixed Cost from Variable Cost? “Schmeduling” in Two-Part Tariffs in Energy
American Economic Journal: Economic Policy, forthcoming. (with Shuang Zhang)
Abstract | Paper
A central assumption in economics is that consumers properly distinguish fixed cost from variable cost. This assumption is fundamental to various economic theories, including optimal taxation, redistribution, and price discrimination. Using a quasi-experiment in heating price reform in China, we find empirical evidence that is inconsistent with this conventional assumption and more consistent with the "schmeduling" model in Liebman and Zeckhauser (2004). As we demonstrate the policy implications for two-part energy tariffs, this consumer behavior makes fixed cost directly relevant to the perceived relative prices of goods, and therefore alters the welfare implications of price, tax, and subsidy designs.
Selection on Welfare Gains: Experimental Evidence from Electricity Plan Choice
American Economic Review, 113 (11): 2937-73, 2023. (with Takanori Ida and Makoto Tanaka).
Abstract | Paper | Slides | Bibtex | Appendix | Japanese
We study a problem in which policymakers need to screen self-selected individuals by unobserved heterogeneity in social welfare gains from a policy intervention. In our framework, the marginal treatment effects and marginal treatment responses arise as key statistics to characterize social welfare. We apply this framework to a randomized field experiment on electricity plan choice. Consumers were offered socially efficient dynamic pricing with randomly assigned take-up incentives. We find that price-elastic consumers—who generate larger welfare gains—are more likely to self-select. Our counterfactual simulations quantify the optimal take-up incentives that exploit observed and unobserved heterogeneity in selection and welfare gains.
The Investment Effects of Market Integration: Evidence from Renewable Energy Expansion in Chile
Econometrica, 91 (5): 1659-1693, 2023. (with Luis Gonzales and Mar Reguant)
Abstract | Paper | Slides | Bibtex | NBER WP
We study the investment effects of market integration on renewable energy expansion. Our theory highlights that market integration not only improves allocative efficiency by gains from trade but also incentivizes new investment in renewable power plants. To test our theoretical predictions, we examine how recent grid expansions in the Chilean electricity market changed electricity production, wholesale prices, generation costs, and renewable investments. We then build a structural model of power plant entry to quantify the impact of market integration with and without the investment effects. We find that the market integration in Chile increased solar generation by around 180%, saved generation costs by 8%, and reduced carbon emissions by 5%. A substantial amount of renewable entry would not have occurred in the absence of market integration. Our findings suggest that ignoring these investment effects would substantially understate the benefits of market integration and its important role in expanding renewable energy.
Willingness to Pay for Clean Air: Evidence from Air Purifier Markets in China
Journal of Political Economy, 128 (5): 1627-1672, 2020. (Lead Article, with Shuang Zhang)
Abstract | Paper | Slides | Bibtex | Wall Street Journal | Forbes | Bloomberg | Japanese
We develop a framework to estimate willingness to pay (WTP) for clean air from defensive investments on differentiated products. Applying this framework to scanner data on air purifier sales in China, we find that households are willing to pay $1.34 per year to remove 1 μg/m3 of PM10 and $32.7 per year to eliminate policy-induced air pollution created by the Huai River heating policy. Substantial heterogeneity in WTP is explained by household income and exposures to media coverage on air pollution. Using these estimates, we examine welfare implications of existing and counterfactual environmental policies in China.
The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards
Review of Economics and Statistics, 100 (2): 319-336, 2018. (with Jim Sallee)
Abstract | Paper | Slides | Bibtex | Nikkei Business | Japanese
We develop a theoretical framework to study "attribute-based regulations," under which regulatory compliance depends upon a secondary attribute that is not the intended target of the regulation. Our theory characterizes the distortionary costs and potential benefits of attribute basing. To test our theoretical predictions, we exploit quasi-experiments in Japanese fuel economy regulations, under which fuel-economy targets are step functions of vehicle weight. Using bunching analysis, we identify large distortions in vehicle weight. We then develop a method that leverages double-notched policies to conduct welfare analysis. We evaluate policy alternatives and quantify the important welfare trade-offs created by attribute-based policies.
Moral Suasion and Economic Incentives: Field Experimental Evidence from Energy Demand
American Economic Journal: Economic Policy, 10 (1): 240-67, 2018. (with Takanori Ida and Makoto Tanaka)
Abstract | Paper | Slides | Bibtex | Washington Post | Forbes | Japanese
Firms and governments often use moral suasion and economic incentives to influence intrinsic and extrinsic motivations for economic activities. To investigate persistence of such interventions, we randomly assign households to moral suasion and dynamic pricing that stimulate energy conservation in peak-demand hours. We find significant habituation and dishabituation for moral suasion―the treatment effect diminishes after repeated interventions but can be restored to the original level by a sufficient time interval between interventions. Economic incentives induce larger treatment effects, little habituation, and significant habit formation. Our results suggest moral suasion and economic incentives produce substantially different short-run and longer-run policy impacts.
Sequential Markets, Market Power and Arbitrage
American Economic Review, 106 (7): 1921-57, 2016. (with Mar Reguant)
Abstract | Paper | Slides | Bibtex | Japanese
We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss.
Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program
American Economic Journal: Economic Policy, 7 (3): 209-37, 2015.
Abstract | Paper | Slides | Bibtex
Many countries use substantial public funds to subsidize reductions in negative externalities. Such policy designs create asymmetric incentives because increases in externalities remain unpriced. I investigate the implications of such policies by using a regression discontinuity design in California's electricity rebate program. Using household-level panel data, I find that the incentive produced precisely estimated zero treatment effects on energy conservation in coastal areas. In contrast, the rebate induced short-run and long-run consumption reductions in inland areas. Income, climate, and air conditioner saturation significantly drive the heterogeneity. Finally, I provide a cost-effectiveness analysis and investigate how to improve the policy design.
Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing
American Economic Review, 104 (2): 537-63, 2014.
Abstract | Paper | Slides | Bibtex
Nonlinear pricing and taxation complicate economic decisions by creating multiple marginal prices for the same good. This paper provides a framework to uncover consumers' perceived price of nonlinear price schedules. I exploit price variation at spatial discontinuities in electricity service areas, where households in the same city experience substantially different nonlinear pricing. Using household-level panel data from administrative records, I find strong evidence that consumers respond to average price rather than marginal or expected marginal price. This suboptimizing behavior makes nonlinear pricing unsuccessful in achieving its policy goal of energy conservation and critically changes the welfare implications of nonlinear pricing.
