The behavioral response to voluntary provision of an environmental public good Evidence from residential electricity demand

This paper develops a theory of voluntary provision of a public good in which a household’s decision to engage in a form of environmentally friendly behavior is based on the desire to offset another behavior that is environmentally harmful. We apply the theory to a setting in which households may purchase green electricity in order to mitigate disutility associated with pollution emissions generated through their own consumption of conventional electricity. The model generates predictions about (1) participation in the green-electricity program at the extensive and intensive margins, and (2) changes in electricity consumption in response to participation. We consider one variation of the model in which households care about the exact amount of green electricity that they purchase, and another variation in which they only care about whether they participate at all. We test the theory using billing data for both participants and nonparticipants in a green-electricity program in Memphis, Tennessee. We find that high-consumption households are more likely to participate and that they participate at higher levels. In terms of a behavioral response, households participating at the minimum threshold increase electricity consumption 2.5 percent after enrolling in the program. The result is based on identification strategies that exploit before-after differences between participants and nonparticipants, and differences in the timing of enrollment among participants only. Despite the increase in electricity demand upon the purchase of green electricity for the households with a “buy-in” mentality, the net effect is a reduction in pollution emissions, as the behavioral response it not large enough to offset the environmental benefit of the green-electricity purchase. * Author affiliations are, respectively, University of Oregon ([email protected]), Yale University and NBER ([email protected]), and Vanderbilt University ([email protected]). We are especially grateful to Becky Williamson of Memphis Light, Gas and Water (MLGW) for generously providing data used in this paper.