Webinaire#16 de Sciences Po Grenoble – UGA : mercredi 15 décembre 2021

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Webinar#16:

The Efficiency of Information Reminders about Pricing under Complex Tariff Schemes for Inattentive Consumers

Speakers: Marie-Estelle Binet, Laurent Denant-Boemont, Sabrina Hammiche

Wednesday December 15, 2021 / 12.30 pm


Abstract:

Pricing Residential Water Consumption: Issues regarding the design of tariff schemes, with social and environmental considerations. Complex Tariff Systems (e.g., Increasing Block RateTariffs for example) are used in many countries. France is an exception, as 95% of the Local Authorities implement Constant Block Rate tariffs. These complex tariff schemes tend to obscure the relationship between price and quantity for households, which triggers the use of simplification heuristics by individuals. More specifically, as underlined by Liebman and Zeckhauser [2004], multitiered pricing based on nonlinear pricing, e.g., the IBR tariff scheme, makes it more difficult for the consumer to perceive the marginal price of additional consumption. Moreover, there are other characteristics of public utilities pricing that exacerbate what the authors called ‘schmeduling’, which is the contraction of a ‘misperceived schedule’. One possible form of schmeduling is ironing where the consumer that faces an increasing marginal price for consumption makes his decision upon an average price, which leads to overconsumption. Another form is spotlighting, when the consumer responds to local prices and ignores the full schedule, which would give underconsumption in the case of increasing marginal price. A possible psychological explanation is that people rely on nonlinear simplification heuristics when facing complex financial incentives.

We design an induced value laboratory consumption choice experiment including 26 sessions from March to September, 2021 and 337 subjects, where complex tariff schemes trigger nonlinear simplification heuristics that lead individuals to over- or underconsume public goods such as electricity, gas, or drinking water. By studying this ‘schmeduling’ bias, we investigate how informational nudges could reduce it. Participants choose consumption levels repeatedly under different tariff schemes, where the marginal price per unit either remains constant (constant block rate, i.e., CBR) or increases above a certain threshold (increasing block rate, or IBR, and Super Progressive or SP). We observe that the vast majority of choices are optimal, but a significant number of them reveal overconsumption. To investigate the impact of the informational nudge on these errors, some of our participants received a marginal price or a bill computation reminder. In that case, the learning effect helps to achieve convergence towards the optimal consumption value. To explain these effects, we use econometric models relying on microeconomic behavioral inattention to price to capture the magnitude of consumers’ inattention, observing, in particular, how the informational nudge is decreasing it.

 

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