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Appears in Collections:Economics Working Papers
Peer Review Status: Refereed
Title: Policy Labels and Investment Decision-making
Other Titles: Policy Labels and Investment Decision-making
Author(s): Lange, Ian
Moro, Mirko
Rahman, Mohammad
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Citation: Lange I, Moro M & Rahman M (2014) Policy Labels and Investment Decision-making. Stirling Economics Discussion Paper, 2014-01.
Keywords: Winter Fuel Payment
Regression Discontinuity
Renewable energy
JEL Code(s): C31
Issue Date: Feb-2014
Series/Report no.: Stirling Economics Discussion Paper, 2014-01
Abstract: Much attention in recent years has turned to the potential of behavioural insights to improve the performance of government policy. One behavioural concept of interest is the effect of a cash transfer label on how the transfer is spent. The Winter Fuel Payment (WFP) is a labelled cash transfer to offset the costs of keeping older households warm in the winter. Previous research has shown that households spend a higher proportion of the WFP on energy expenditures due to its label (Beatty et al., 2011). If households interpret the WFP as money for their energy bills, it may reduce their willingness to undertake investments which help achieving the same goal, such as the adoption of renewable energy technologies. In this paper we show that the WFP has distortionary effects on the renewable technology market. Using the sharp eligibility criteria of the WFP in a Regression Discontinuity Design, this analysis finds a reduction in the propensity to install renewable energy technologies of around 2.7 percentage points due to the WFP. This is a considerable number. It implies that 62% of households (whose oldest member turns 60) would have invested in renewable energy but refrain to do so after receiving the WFP. This analysis suggests that the labelling effect spreads to products related to the labelled good. In this case, households use too much energy from sources which generate pollution and too little from relatively cleaner technologies.
Type: Working or Discussion Paper
Affiliation: Colorado School of Mines

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