NANCY Seminar – Marie-Estelle BINET (Université de Bretagne Occidentale)

Event details :

Title: From incentives effect of non-linear pricing schemes to behavioral confusion: A laboratory economic experiment, co-written with Laurent DENANT-BOEMONT and Sabrina HAMMICHE

Abstract: We design an induced value laboratory consumption choice experiment where complex tariff schemes trigger nonlinear simplification heuristics that lead individuals to over- or under-consume public goods such as electricity, gas, or drinking water. By comparing consumption choice to an individual optimum, we are able to compare different tariff schemes in terms of efficiency. We also investigate how an informational nudge could reduce deviation from optimal values. Participants choose consumption levels repeatedly under different tariff schemes, where the marginal price per unit either remains constant (constant block rate, i.e., CBR) or increases above a certain threshold (increasing block rate, or IBR or super-progressive SP). We observe that the vast majority of choices are optimal, but a significant number of them reveal overconsumption. To investigate the impact of informational nudges on these errors, some of our participants received either a bill computation reminder (BR) or a BR plus a marginal price reminder (PR). We obtain two main results based on econometric and behavioral models. First, complex tariff schemes decrease the probability of optimal choice compared to CBR, but remain effective in reducing errors in case of non optimal choice. Therefore, cognitive costs associated with complex tariff schemes are not negligible compared to their incentives effects. Second, we show that, against all expectations, nudges seem to confuse participants, which even contributes to a deterioration in individual welfare.