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The Welfare Effects of Nudges: A Case Study of Energy Use Social Comparisons

Hunt Allcott, Judd B. Kessler

NBER Working Paper No. 21671
Issued in October 2015, Revised in March 2017
NBER Program(s):Environment and Energy Economics, Public Economics

“Nudge”-style interventions are often deemed “successful” if they cause large behavior change, but they are rarely subjected to full social welfare evaluations. We combine a field experiment with a simple theoretical framework to evaluate the welfare effects of one especially policy-relevant intervention, home energy social comparison reports. In our sample, the reports increase social welfare, although traditional evaluation approaches overstate welfare gains by a factor of 3.7. Overall, the welfare gains from home energy reports might be overstated by $620 million. We develop a prediction algorithm for optimal targeting; this would double the welfare gains.

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Document Object Identifier (DOI): 10.3386/w21671

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