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Behavioral Considerations in Environmental Economics

Paper Session

Sunday, Jan. 8, 2017 3:15 PM – 5:15 PM

Swissotel Chicago, Zurich E
Hosted By: Association of Environmental and Resource Economists
  • Chair: Kenneth Gillingham, Yale University

Projection Bias in the Decision to Go Solar: Evidence on Costly Cancellations

Yanjun Liao
,
University of California-San Diego

Abstract

This paper studies the effect of short-run weather fluctuations on solar panel adoption in California. I find that customers whose sign-up for solar panels is followed by bad weather are more likely to cancel their contract. In contrast, non-residential customers appear unaffected by short-term weather conditions. These results are consistent with residential customers suffering from projection bias – that is, they rely too heavily on transient conditions when predicting long-run utility. I show further evidence that this effect is mainly driven by mistaken predictions about future solar panel performance rather than electricity demand. There is also suggestive evidence that having more neighbors with solar panels does not mitigate projection bias, and that marginal customers are more susceptible to it. The results add to the emerging field evidence on projection bias, particularly by carefully considering the dynamics of the entire purchase-return cycle. The results also have efficiency implications for current subsidy programs on solar panel adoption.

You Can’t Take It With You: Appliance Choices and the Energy Efficiency Gap

Ryan Sandler
,
Federal Trade Commission

Abstract

The benefits of an investment in an energy efficient durable good depend on the life of the investment. If the expected length of ownership is mis-estimated, this will bias calculations of the benefits of energy efficiency, including estimates of the energy efficiency gap. This paper estimates how expected ownership length affects household appliance choices. I leverage the fact that some types of appliances are expected to convey (be included) with the sale of a house, while other appliances may or may not convey depending on local customs that vary at the state level. An appliance that conveys will be left behind when a homeowner moves, while an appliance that does not convey may be kept until the end of its useful life. I estimate the effect of an appliance conveying using a difference-in-differences across states and appliance types, allowing me to control for state-level trends using fixed effects. I find that consumers purchase less expensive refrigerators and clothes washers when those appliances convey. I show that accounting for whether an appliance conveys can substantially reduce or eliminate apparent undervaluation of energy efficiency benefits.

Does Mandatory Labeling of Outfall Points Influence Pollution and Compliance? Evidence From Ohio

Jay Shimshack
,
University of Virginia
Xian Liu
,
Indiana University

Abstract

This is the first paper to show that compulsory public labeling of pollution sources influences facilities’ environmental performance and compliance. Using extensive regulatory compliance data and quasi-experimental methods that exploit policy institutions for identification, we document that an Ohio program that required visible signs at all water pollution outfalls had large impacts on pollution discharges and violations. Treated facilities’ violations fell about one-third and overall discharges fell about eight percent relative to a counterfactual. Heterogeneity explorations are suggestive of several traditional and behavioral economic mechanisms.

Air Pollution and Investor Behavior: Evidence From S&P 500 Returns

Anthony Heyes
,
University of Ottawa
Matthew Neidell
,
Columbia University, IZA, and NBER
Soodeh Saberian
,
University of Ottawa

Abstract

4. We provide the first empirical evidence of a direct link between air pollution and the efficient operation of financial markets. Recent experimental research has identified a causal link from short-term exposure to air pollution to cognition, mood, risk attitudes and decision-making. Consistent with such influence on the behavior of Manhattan-based market traders, we provide evidence linking short-term variations in PM2.5 in New York to movements in the S&P 500. The effects are substantial - a one standard deviation increases in ambient PM2.5 concentrations reduces same-day returns by 11.9% in our preferred specification - and remarkably robust to a variety of specifications and a battery of robustness and falsification checks. Furthermore, the intra-day effects that we observe are difficult to reconcile with competing hypotheses. Despite investors being dispersed we find strong evidence that the effect is local in nature, consistent with their high concentration in New York, or the influential role of Manhattan-based market-making professionals. While we are agnostic as to the underlying mechanism, we provide evidence suggestive of the role of decreased risk tolerance, perhaps through pollutioninduced changes in mood or cognitive function.
Discussant(s)
Kenneth Gillingham
,
Yale University
Sebastien Houde
,
University of Maryland
Matthew Gibson
,
Williams College
Ronald Shadbegian
,
National University of Singapore
JEL Classifications
  • Q5 - Environmental Economics