Information and environmental policy

Abstract

Within this manuscript, I present three distinct essays linked by the commonality of how information is utilized in decision-making and its effect on environmental policy.

In the first essay, I evaluate the price to which consumers respond under complicated billing structures. I exploit a natural experiment to estimate a causal effect of price for residential water customers during the introduction of increasing block rates for a North Carolina utility. Perceived price is identified through a billing anomaly in which changes in marginal and average prices move in opposite directions. Empirical results contribute evidence that residential water customers respond to average price. Average price elasticity estimates vary from -0.43 to -1.14 across the distribution of consumption in triple-difference models, with an estimate of -0.31 in the tightest bandwidth of regression discontinuity specifications.

In the second essay, I examine a causal effect of billing frequency on consumer behavior. I exploit a natural experiment in which residential water customers transitioned exogenously from bi-monthly to monthly billing. I find that customers increase consumption by approximately five percent in response to more frequent information. This result is reconciled in a model of price and quantity uncertainty, where increases in billing frequency reduce the distortion in consumers' perceptions. Using treatment effects as sufficient statistics, I calculate gains in consumer surplus equivalent to 0.5--1 percent of annual water expenditures. Heterogeneous treatment effects suggest increases in outdoor water use.

And, in the final essay, I consider the role of heterogeneous green preferences for private provision of environmental public goods in an asymmetric information context. Under varying degrees of information available to a regulator, I characterize equilibrium properties of several mechanisms. I find incentive compatible Nash equilibria that provide socially optimal public goods provision when the regulator can enforce individual consumption contracts, as well as when reported consumption contracts are supplemented with group penalties. The role of budget balancing is recast as a policy intervention for correcting environmental market failures.