Rationing Public Goods by Cooperation or Pecuniary Incentives: Evidence from the Spare-the-Air Program∗

Policy-makers have relied on non-coercive mechanisms to achieve socially optimal outcomes in a variety of contexts when prices fail to ration scarce resources. Amid heightened concern about environmental damage and climate change, public appeals for cooperation and pecuniary incentives are frequently used to achieve resource conservation and other prosocial behavior. Yet the relative effectiveness of these two instruments is poorly understood when pecuniary incentives are small. This paper examines the extent to which free transit fares and appeals for car trip avoidance reduce car pollution on smoggy days. Using data on freeway traffic volumes and transit ridership, public appeals for cooperation are shown to reduce car trips. The marginal effect of free transit fares, however, is to increase car trips. Public appeals are shown to increase carpooling but not transit ridership. Free fares increase transit ridership but not carpooling. These results suggest that free transit rides do not induce motorists to substitute to transit, but instead subsidize regular transit rides and additional trips. They support findings in the behavioral literature that extrinsic incentives can crowd-out