Selection on Welfare Gains: Experimental Evidence from Electricity Plan Choice

Author Name ITO Koichiro (Visiting Fellow, RIETI) / IDA Takanori (Kyoto University) / TANAKA Makoto (GRIPS)
Creation Date/NO. February 2021 21-E-008
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We study a problem in which policymakers need to screen self-selected individuals based on their unobserved heterogeneity in the social welfare gains resulting from a policy intervention. In our framework, the marginal treatment effects and marginal treatment responses arise as key statistics that allow for the characterization of social welfare. We apply this framework to a randomized field experiment on electricity plan choice. Consumers were offered socially efficient dynamic pricing with randomly assigned take-up incentives. We find that price-elastic consumers—who generate larger welfare gains—are more likely to self-select. Our counterfactual simulations quantify the optimal take-up incentives that exploit observed and unobserved heterogeneity in selection and welfare gains.