Do Better Labels Lead to Better Choices? Evidence from Energy Efficient Labels

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Principal investigator:

Gilbert Metcalf

Tufts University

Email: gilbert.metcalf@tufts.edu

Homepage: http://ase.tufts.edu/economics/people/peopleMetcalf.htm


Sample size: 2440

Field period: 10/22/2013-08/19/2014

Abstract
Information provision is a key element of government energy-efficiency policy. Since 1980, major appliances sold in the United States must have a yellow EnergyGuide label providing energy usage information. This information is intended to help consumers make better decisions, but in many cases existing labels do not provide accurate information necessary for consumers to make efficient decisions. In particular, the reported "estimated yearly operating cost" in these labels is calculated for each appliance based on national average energy prices and typical national usage. In practice, energy prices and typical usage vary substantially across the United States, so these measures are highly inaccurate for many households.

The objective of our project is to evaluate the welfare costs of this inaccurate information. We propose an online experiment to measure how consumer decisions would change with better (i.e. more accurate) labels. Our hypothesis is that better labels will lead to better choices. More precisely, we hypothesize that total lifetime cost (purchase price plus expected present discounted energy costs) will fall as participants choose units that better match their local electricity prices and demand for usage.

Hypotheses
Our hypothesis is that better labels will lead to better choices. More precisely, we hypothesize that total lifetime cost (purchase price plus expected present discounted energy costs) will fall as participants choose units that better match their local electricity prices and demand for usage.

Experimental Manipulations
The control group is shown the current EnergyGuide labels while treatment group is shown EnergyGuide labels with operating costs computed based on state-specific average electricity prices and air conditioner usage.

Outcomes

Appliance choice and resultant lifetime cost of appliance

Summary of Results
We find that state-specific labels lead to significantly better choices. Consumers choose to invest about the same amount overall in energy-efficiency, but the allocation is much better with more investment in high-usage high-price states and less investment in low-usage low-price states. The implied aggregate cost savings are larger than the cost of implementing state-specific labels.

References

References

Davis, Lucas W. and Gilbert E. Metcalf. "Does Better Information Lead to Better Choices? Evidence from Energy-Efficiency Labels." Working Paper, March 2015.