CMU Pugwash


Energy Reduction Incentives & Libertarian Paternalism

We will be discussing energy policy. Rather than discuss energy policy from a "What energy source should we choose" perspective, we've decided to introduce energy policy from a "How should we incentivize people to use less energy" perspective. This does not only include tax credits, or carbon emission taxes but more creative methods using libertarian paternalism.

In 2003, behavioral economist Richard Thaler introduced his theory of libertarian paternalism (LP) in which he outlines incentive structures that "influence choices in a way that will make choosers better off, as judged by themselves" (Thaler 2003). Recently this idea of libertarian paternalism (sometimes called Nudge Theory) has been applied to energy policy in how we encourage people to make good energy choices.

To provide an idea of how LP works, the following video features a trash can that has been modified to make a falling noise when something is thrown away, so people will throw away their trash rather than litter:

CMU professor Tamar Krishnamurty is currently applying LP in an attempt to reduce energy usage by neighborhood. Each household in the neighborhood is given a monthly report showing their energy consumption for that month along with the average energy consumption for the neighborhood. If your household energy consumption is less than the average, you received a smily face on your report, and if your household energy consumption is higher than the average, you received a sad face on your report. The result is that by "shaming" those households that consume above the average, they work to decrease their energy consumption for next month.

Although this is a low-cost and effective way to decrease energy usage, there is major controversy as to whether it is ethical ( . As scientist and policy-makers, should we be allowed to dictate what constitutes "good behavior" for other individuals when it comes to energy consumption. What is the boundary between ethical and unethical measures when trying to incentivize certain energy-usage behaviors.


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