Work in Progress
The Incidence of Coarse Certification: Evidence from the ENERGY STAR Program
A coarse certification provides a simple, but incomplete information signal about quality. Its rationale is to help consumers trade off dimensions of quality that are complex and lack salience. In imperfectly competitive markets, it may induce excess bunching at the certification requirement, crowd out the provision of quality, and facilitate price discrimination. Who will ultimately benefit from a coarse certification thus depends on the degree of market power firms can exercise as well as on the share of sophisticated consumers that responds to such an information signal. This paper illustrates these insights using the ENERGY STAR certification program as a case study. I investigate the incidence of the program with a structural econometric model of the U.S. appliance market. I find that the certification crowds out the provision of energy efficiency, consumers are better off without certification, and its impact on firms' profits is small and heterogeneous. These conclusions crucially depend on the degree of market power firms hold, the energy prices, the share of sophisticated consumers, and the stringency of the certification requirement.
We define the concept of micro-frictions to describe the various phenomena that impact the behavioral responses to fiscal policies. Micro-frictions encompass tangible economic costs to behavioral biases. We first develop a theoretical framework and show that in the design of corrective policies the nature of micro-frictions as well of heterogeneity in micro-friction across policy instruments and consumers are important to consider. The classic Pigouvian result hold only if micro-frictions are considered tangible economic costs---behavioral biases, on the other hand, may require large adjustments to the level of the tax. Heterogeneity matters in determining whether and how to combine multiple instruments. Using data from the U.S. appliance market, we estimate the heterogeneous behavioral responses to energy fiscal policies and quantify micro-frictions. We then use the theoretical framework to investigate optimal corrective policies in this context. The presence of behavioral biases associated with the perception of energy operating costs may justify large adjustment to a Pigouvian tax, but it is rarely optimal to combine an energy tax with a subsidy, such as a rebate or a sales tax exemption. We also find that energy labels may interact with energy fiscal policies and lead to perverse effects. We show that these unintended consequences can be avoided by using fiscal instruments that directly impact the purchase price of energy-intensive durables instead of instruments that impact the price of energy.
Minimum energy efficiency standards have occupied a central role in U.S. energy policy for more than three decades, but little is known about their welfare effects. In this paper, we employ a revealed preference approach to quantify the impact of past revisions in energy efficiency standards on product quality. The micro-foundation of our approach is a discrete choice model that allows us to compute a price-adjusted index of vertical quality. Focusing on the appliance market, we show that several standard revisions during the period 2001-2011 have led to an increase in quality. We also show that these standards have had a modest effect on prices, and in some cases they even led to decreases in prices. For revision events where overall quality increases and prices decrease, the consumer welfare effect of tightening the standards is unambiguously positive. Finally, we show that after controlling for the effect of improvement in energy efficiency, standards have induced an expansion of quality in the non-energy dimension. We discuss how imperfect competition can rationalize these results.
Bunching With the Stars: How Firms Respond to Environmental Certification
New version in preparation