Evaluating Behaviorally Motivated Policy: Experimental Evidence from the Lightbulb Market

Imperfect information and inattention to energy costs are important potential motivations for energy efficiency standards and subsidies. We evaluate these motivations in the lightbulb market using a theoretical model and two randomized experiments. We derive welfare effects as functions of reduced-form sufficient statistics capturing economic and psychological parameters, which we estimate using a novel within-subject information disclosure experiment. The main results suggest that moderate subsidies for energy-efficient lightbulbs may increase welfare, but informational and attentional biases alone do not justify a ban on incandescent lightbulbs. Our results and techniques generate broader methodological insights into welfare analysis with misoptimizing consumers. (JEL D12, D83, H21, H31, L67, Q41, Q48) A fundamental assumption in traditional policy analysis is that people’s choices identify their true preferences. In practice, however, many policies are at least partially predicated on the idea that consumers’ choices may not maximize their own welfare. Examples include consumer financial protection, taxes and bans on drugs, alcohol, cigarettes, and unhealthy foods, and subsidies and mandates for energy-efficient products. To evaluate such policies, it is necessary to extend traditional public finance analysis to allow for the possibility of consumer mistakes and to design empirical strategies that identify the necessary economic and psychological parameters. This paper carries this out in the context of energy efficiency policy.