Input Efficiency as a Solution to Externalities: a randomized controlled trial

Francisco Alpizar (Wageningen - University and Research)

March 9, 2020, 11:00–12:15


Room Auditorium 6 - Level 3

Environment Economics Seminar


To address natural resource scarcity and externalities, economists emphasize property rights and prices. In contrast, engineers and policymakers often emphasize resource-conserving technologies, such as energy-efficient or water-efficient technologies, and input-efficient (precision) agriculture and forestry. Proponents of public programs that encourage adoption of these technologies have identified numerous product adoption "puzzles," in which adoption rates are low despite engineering estimates that imply both users and the environment would benefit. Economists have been skeptical of such puzzles, but they have relied on observational designs in which unbiased estimation of effects is challenging, or on experimental designs with low product adoption rates. To shed light on this debate, we report results from a randomized trial using water-efficient technologies. First, we show that engineering estimates of input reductions are substantially exaggerated (more than three-fold). Second, we demonstrate that the divergence in impact estimates can be attributed to engineering and behavioral reasons other than the "rebound effect" that has attracted the most attention from economists. Third, by combining our experimental estimator, detailed cost information, and experimentally elicited and jointly estimated time and risk preferences from the target population, we demonstrate the private welfare gains from technology adoption are negative, implying no "efficiency paradox."