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Robert Hahn, Robert D Metcalfe

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Economic theory suggests that energy subsidies ca lead to excessive consumption and environmental degradation. However, the precise impact of energy subsidies is not well understood. We analyze a large energy subsidy: the California Alternate Rates for Energy (CARE). CARE provides a price reduction for low-income consumers of natural gas and electricity. Using a natural field experiment, we estimate the price elasticity of demand for natural gas to be about -0.35 for CARE customers. An economic model of this subsidy yields three results. First, the natural gas subsidy appears to reduce welfare. Second, the economic impact of various policies, such as cap-and-trade, depends on whether prices for various customers move closer to the marginal social cost. Third, benefits to CARE customers need to increase by 6% to offset the costs of the program.

Jesper Akesson, Robert Hahn, Rajat Kochhar, Robert D Metcalfe

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Water suppliers are showing greater interest in using different mechanisms to promote conservation. One such mechanism is conducting home water audits, which involves assessing water use and providing tailored suggestions for conserving water for residential customers. Yet, very little is known about the economic impacts of these water audits. This paper helps fill this gap by implementing a natural field experiment in the United Kingdom. The experiment randomly allocates 45,000 water customers to a control group or to treatment groups that receive different behavioral encouragements to take-up an online water audit. Our analysis yields three main findings. First, encouraging subjects to participate in an audit with financial incentives reduces household consumption by about 17 percent over two months. Furthermore, we find that the size of the financial incentive used to encourage conservation matters for take-up, but not conservation. Second, although there are substantial improvements in water conservation for some interventions, they do not appear to yield net benefits of more than 1 pound per person under various sensitivity analyses. We also implement a marginal value of public funds approach that considers benefits and costs and reach a similar conclusion. Third, we find that targeting high users could double the effectiveness of the financial incentive interventions.

Jesper Akesson, Robert Hahn, Robert D Metcalfe, Manuel Monti-Nussbaum

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Although fake online customer reviews have become prevalent on platforms such as Amazon, Google, and Facebook, little is known about how these reviews influence consumer behavior. This paper provides the first experimental estimates of the effects of fake reviews on individual demand and welfare. We conduct an incentive-compatible online experiment with a nationally representative sample of respondents from the United Kingdom. Consumers are asked to choose a product category, browse a platform resembling Amazon, and select one of five equally priced products. One of the products is of inferior quality, one is of superior quality, and three are of average quality. We randomly allocate participants to variants of the platform: five treatment groups see positive fake reviews for an inferior product, and the control group does not see fake reviews. Moreover, some participants are randomly selected to receive an educational intervention that aims to mitigate the potential effects of fake reviews. Our analysis of the experimental data yields four findings. First, fake reviews make consumers more likely to choose lower-quality products. Second, we estimate that welfare losses from such reviews may be important - on the order of .12 dollars for each dollar spent in the setting we study. Third, we find that fake reviews have heterogeneous effects. For example, the effect of fake reviews is smaller for those who do not trust customer reviews. Fake reviews also have larger effects on those who shop online more frequently. Fourth, we show that the educational intervention reduces the adverse welfare impact of fake reviews by 44%.