discounting the environment: the negative impact of price

Discounting the environment: The negative impact of price discounts

on pro-environmental behavior

Daniel Schwartz George Loewenstein

Carnegie Mellon University

Behavior, Energy and Climate Change Conference - December, 2011

Discounting the Environment - Daniel Schwartz

Compact Fluorescent Light Bulb (CFL)


The “Light bulb puzzle” • Energy savings and economic benefits of CFL’s ▫ Payback in less than one year (e.g. Bertoldi and Atanasiu, 2006)

▫ Alternative of incandescent light bulbs (IL’s)

• But: low adoption rate (Di Maria, Ferreira, and Lazarova, 2008; Mills and Schleich, 2008; IEA, 2006)


Monetary incentives and non-price factors

• Price discounts or rebates • Non-price factors?


Monetary incentives • Standard economic tool to incentivize specific behaviors

• Some limitations…

10% off


Monetary incentives – limitations… • The French wanted to exterminate a rat plague in Hanoi. • They started to pay for each dead rat

• Encouraged rat breeding! (Vann, 2003)


Monetary incentives – limitations… • A daycare had a problem with parents picking up their kids

after the closing time • They introduced a fine for a delay

• Delays increased! …parents were now paying for late pickups (Gnezzy and Rustichini, 2002)


CFLs…Non-price potential solutions • Price-sensitivity is diluted by non-price factors (Wilms & Mills,

1995)

▫ e.g., awareness of benefits, including environment

• Social pressure (Herberich, List & Price, 2011)

• Environmental awareness and education (Di Maria et al., 2010)


Questions

Are price discounts effective? Is there an effective non-price factor (e.g. eco-

friendly) to encourage CFLs purchase? self-labeling technique

Do price discounts negatively interact with this

non-price factor?

Theoretical framework


Theoretical framework (1) • Negative effect of adding financial benefits on altruistic

behavior ▫ Frey and Oberholzer-Gee (1997): No reward: 50.8% in favor of placing a nuclear waste repository Reward: 24.6%

▫ Even for tasks with inherent extrinsic motivation (Schwartz, Bruine de Bruin, Fischhoff, and Lave, 2011)

• Rewards spoil reputational value of good deeds by creating

(self) doubt as the real motivation (Bénabou and Tirole, 2006)


Theoretical framework (2) • Altruistic behavior can be enhanced by labeling people’s

reputational values. (Allen, 1982; Bem, 1972; Cornelissen et al., 2007).

• Self-labeling technique ▫ People seek to maintain a positive image in terms of their self-

concept (self-signaling)

“You are green”

“Am I the type of person who usually chooses the

pro-environmental product?”


Overview of studies • Add discounts

• Label participants about their pro-environmental values

• Examine whether price discounts have a backfiring effect ▫ Undermine people’s self-perception of being ‘green’.

15% OFF

This product is for

GREEN SHOPPERS

Study 1Experimental design Results


Experimental design • Participants had to

hypothetically buy one product .

• 2 (Label vs. No Label) x 4 (discounts on products) between-subjects design: ▫ Green label ▫ Discounts: No discounts 5% on CFL 15% on CFL 5% on IL

N = 889 (mTurk; Mage = 34)


Results (1)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

No discounts 5% on CFL 15% on CFL 5% on incandescent

% C

FL’s

pur

chas

e

Label No Label


Results (2)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%


% C

FL’s

pur

chas

e

Label No Label


Results (3)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%


% C

FL’s

pur

chas

e

Label No Label


Results (4)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%


% C

FL’s

pur

chas

e

Label No Label

Study 2Experimental design Results


Passersby were invited to answer an online survey about Pittsburgh

$5-coupon to be used as compensation in an online store

Recruitment • A mobile research lab parked in a commercial area • Lab located next to a food court of a commercial building

N = 449 (Mage = 39)


Experimental design • Access to online store that offered light bulbs and other

products ▫ More cash buying IL’s ▫ Other products were more expensive

• 2x2 between-subjects factorial design (‘green label’ x ‘discount’) ▫ green label ▫ 15% discount on the CFL


Experimental design (cont’d) • Some questions • Product and unspent money


Results (2)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

No discount Discount

% C

FL’s

pur

chas

e

LabelNo Label

This product is for

GREEN SHOPPERS


Results (3)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%


% C

FL’s

pur

chas

e

LabelNo Label

15% OFF


Results (4)

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%


% C

FL’s

pur

chas

e

LabelNo Label

This product is for

GREEN SHOPPERS

15% OFF


CFL survey 27

Variable Stats Why NOT buy CFLs (and have heard about them)

More expensive Lower quality Mercury Don’t want to change incandescents Don’t like light quality Other (e.g. time to warm up)

43.8% 8.0%

21.4% 6.9%

20.7% 19.2%

Why buy CFLs (and have bought them) Save money Protect the environment Other (e.g. last longer)

54.2% 68.7% 7.8%

Conclusions and discussion


Conclusions • Adding the ‘green label’ promoted CFLs’ purchase (study 1

and 2).

• The discount on incandescent light bulbs didn’t work as a signaling mechanism to promote CFL’s purchase (study 1).

• Discounts were detrimental (study 1) or ineffective (study 2) when the ‘green label’ wasn’t included. ▫ The CFL without the ‘green label’ may not have produced the

environmental values to create self-doubts


Conclusions (cont’d) • Discounts on CFLs had a detrimental effect (study 1 and 2)

when we made salient that the product was for green shoppers.

• Discounts ‘interfere’ with people’s self-signaling of pro-environmental values (specially in study 2). ▫ This effect may not apply to people who typically have no need for

CFLs (or stronger intervention to induce self-doubts is needed) Consistent with Di Maria, Ferreira, and Lazarova (2008)


Discussion

• Limitations ▫ Size of discount ▫ People that don’t care about the environment ▫ Population differences (e.g. Sweden vs. U.S. ; high vs. low

income households)

• Future work ▫ Underlying mechanism: self-signaling ▫ Higher prices on green products ▫ Other products

People who don’t care about the environment buy incandescent light bulbs

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discounting the environment: the negative impact of price

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