Do Extrinsic Incentives Undermine Social Norms? Evidence from a Field Experiment in Energy Conservation

Abstract

Policymakers use both extrinsic and intrinsic incentives to induce consumers to change behavior. This paper investigates whether the use of extrinsic financial incentives is complementary to intrinsic incentives, or whether financial incentives undermine the effect of intrinsic incentives. We conduct a randomized controlled trial that uses information interventions to residential electricity customers to test this question. We find that adding economic incentives to normative messages not only does not strengthen the effect of the latter but may reduce it. These results are consistent with recent theoretical work that suggests a tension between intrinsic motivation and extrinsic incentives.

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Notes

  1. 1.

    For example, see Allcott (2011) on energy conservation, Ferraro and Price (2013) on water conservation, Frey and Meier (2004) on charitable giving, and Duflo and Saez (2003) on retirement savings.

  2. 2.

    Attari et al. (2010) highlight a related concern-incorrect beliefs about the relative energy intensity of various appliances within the home and the tendency to underestimate the amount of energy used when operating dishwashers or central air conditioning units relative to that used by a standard incandescent lightbulb.

  3. 3.

    For example, see Allcott and Rogers (2014).

  4. 4.

    For an illustrative model of moral costs, see Levitt and List (2007) which provides a framework that outlines how factors such as social norms and salience can be used to promote prosocial behaivor. Under this setup, messages that frame conservation as a social norm should trigger added “costs” of consumption and hence reductions in use.

  5. 5.

    Data from the baseline treatment are used in a companion paper (Pellerano et al. 2015) which provides a comparison of this treatment with an alternative information intervention that makes salient the underlying tariff schedule.

  6. 6.

    There are several key distinctions between our paper and Ito et al. (2015). First, Ito compares behavior across treatments that rely upon moral suasion (intrinsic incentives) only and critical peak pricing (extrinsic incentives) only. In contrast, our study explores the outcome when one augments messages that include a social comparison (intrinsic incentive to conserve) with possible extrinsic benefits (lower energy bills) of conserving energy. Second, in our study extrinsic benefits are discontinuous while the incentives to conserve in Ito are continuous during peak periods. Finally, the moral suasion message in Ito is an appeal to use energy wisely while our study uses a social comparison.

  7. 7.

    The size of the notch varies slightly month-to-month, but the notch always occurs at 111 kWh and is always several dollars during the period of our study. The size of the notch depends on monthly cross-subsidies which are collected from households with consumption above 160 kWh in a given month (10% surcharge) and distributed to households with consumption below 130 kWh in the following month.

  8. 8.

    One might worry that the presence of the notch drives the mode of consumption to be 110, however that does not appear to be the case. The 110 price notch was instituted in 2007, yet the 110 mode of consumption existed prior to 2007, as shown in “Appendix 3”.

  9. 9.

    A third treatment group only received information about the existence of the price notch. However, this arm of the experiment is the topic of Pellerano et al. (2015), so we do not discuss it in this paper.

  10. 10.

    For example, average daily consumption for the various experiments in Allcott (2011) was approximately 4 to 15 times greater than that observed in our study (about 3.3 to 4.1 kWh per day). Also Ferraro and Price (2013) do not send letters to and exclude from the analysis any household whose consumption in the pre-intervention period was in the lower quartile of the use distribution.

  11. 11.

    Given the level at which randomization occurred, it is possible in principle that spillovers exist across treatment and control households. We believe this to be unlikely in practice because it would require neighbors to show each other and discuss electric bills. However, if any meaningful spillovers exist, our estimates would be downward biased and the true impact of treatment would be larger.

  12. 12.

    Unfortunately we have no demographic information on the households, so we are unable to test for differences in other household characteristics.

  13. 13.

    In our sample, meter-read windows range from 28 to 32 days.

  14. 14.

    Panel C shows that we find no evidence of a boomerang effect.

  15. 15.

    For example, Allcott and Rogers (2014) use high frequency data on use to document a pattern of “action and backsliding” whereby the effect of treatment is greater in the week following receipt of an HER but tends to decay in the subsequent weeks until the next report is received. However, such a pattern is short-lived and the effect of the HER in the weeks between reports tends to stabilize over time. As such, the estimated treatment effect in the first few months is less than that observed in subsequent months when the household has received continued HERs.

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Authors

Corresponding author

Correspondence to Michael K. Price.

Additional information

We thank the Quito Electricity Company (Empresa Eléctrica Quito-EEQ) for access to data and the coordination work to implement this project. We are especially indebted to Milton Balseca and Wilson Vásquez for their support and assistance. The results presented in this paper do not reflect the opinions of the Quito Electricity Company.

Appendices

Appendix 1: Treatment Letters and Translations

Intrinsic Incentive

Sample letter for social comparison (Spanish)

figurea

INFORMACIÓN IMPORTANTE

Ahorre Electricidad y Ahorre Dinero

Estimado Cliente:

La siguiente información de su consumo mensual de electricidad durante el año pasado puede ser de su interés.

Su consumo promedio mensual fue aproximadamente: XXX kWh
Un hogar similar al suyo consume en promedio: 110 kWh

Esto significa que, durante el año pasado usted consumió aproximadamente X,XX % más que otros hogares similares. Le exhortamos a que haga un uso eficiente de la energía para ahorrar dinero.

Por favor lea con atención los siguientes consejos sobre ahorro de energía eléctrica para que empiece a ahorrar dinero ya! Comparta esta información con los demás miembros del hogar.

  • No deje la puerta del refrigerador abierta por mucho tiempo y asegúrese que la puerta cierre herméticamente.

  • No deje el televisor encendido si nadie lo mira.

  • No olvide apagar las luces al salir de una habitación.

!AHORRE ELECTRICIDAD, AHORRE DINERO!

Intrinsic Incentive

Sample letter for social comparison (Translation)

figureb

IMPORTANT INFORMATION

Save Electricity and Save Money

Dear Customer:

We thought that you might be interested in the following information regarding your monthly electricity use over the past year.

Your average monthly consumption was: XXX kWh
The average household like you consumes: 110 kWh

Over the past year, this means that you have consumed approximately X,XX% more electricity per month than others like you. We encourage you to use energy wisely to save money.

Please read carefully the following savings tips so you can learn how to save right away. Share this information with all the other members of the household.

  • Don’t leave the refrigerator door open for too long and make sure it closes tightly.

  • Turn off the television if nobody is watching it.

  • Don’t forget to turn off the lights when leaving a room.

!SAVE ELECTRICITY, SAVE MONEY!

Intrinsic and Extrinsic Incentive

Sample letter for social comparison and price salience combined (Translation)

figurec

IMPORTANT INFORMATION

Save Electricity and Save Money

Dear Customer: The electric tariff established by CONELEC is progressive. What this means for you is that there is a large increase in your monthly bill should you consume more than 110 kWh.

We thought that you might be interested in the following information regarding your monthly electricity use over the past year.

Your average monthly consumption was: XXX kWh
The average household like you consumes: 110 kWh

Over the past year, this means that you have paid around US$ XX a month for the electricity you use (US$ XXX per year). If you were to reduce your electricity use by X kWh per month (around X,XX% of your current consumption), you would reduce your monthly energy bill by nearly XX,XX% and would save approximately US$ XX per year. We encourage you to use energy wisely to save money.

Please read carefully the following savings tips so you can learn how to save right away. Share this information with all the other members of the household.

  • Don’t leave the refrigerator door open for too long and make sure it closes tightly.

  • Turn off the television if nobody is watching it.

  • Don’t forget to turn off the lights when leaving a room.

!SAVE ELECTRICITY, SAVE MONEY!

Appendix 2: Sample Monthly Electric Bill

figured

Appendix 3: 110 Mode in Consumption Prior to Creation of Notch

figuree

Appendix 4: Monthly Consumption January 2013-June 2014

See Table 4.

Table 4 Summary statistics: monthly consumption (kWh)

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Pellerano, J.A., Price, M.K., Puller, S.L. et al. Do Extrinsic Incentives Undermine Social Norms? Evidence from a Field Experiment in Energy Conservation. Environ Resource Econ 67, 413–428 (2017). https://doi.org/10.1007/s10640-016-0094-3

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Keywords

  • Behavioral economics
  • Field experiments
  • Energy conservation
  • Normative appeals