In the past decade or so, there has been a strong push for using information to “nudge” consumers to conserve residential water and electricity. The benefits of these programs are numerous—first, consumers who reduce their usage also reduce their utility bills; second, conservation is good for the environment; and third, providing such information tends to be easier to implement than, for example, higher prices.
These informative interventions can take the form of comparing your electricity usage to your neighbors’, notifying you of how much electricity you have used in a billing period, or simply reminding you that your consumption incurs a cost in real time. Most evaluations of these types of programs confirm that they induce conservation. However, my recent analysis of one such program finds the opposite.
In a new RFF discussion paper, I look at water customers’ responses to a change in billing frequency in the southeastern United States. Specifically, residential water customers were transitioned from receiving water bills every other month to receiving them every month. To identify how water demand responded as a result of this change, consumption from households on monthly billing can be compared to that of households on bi-monthly billing since the transition was rolled out over several years. This change in billing frequency can be examined as an informative intervention since consumers are provided with more frequent information about their billed usage.
Standard economic theory suggests that such a change should not affect consumption since price, the primary criteria used for decisionmaking, remained the same. I find strong empirical evidence, however, that the change in billing frequency directly increased water use by approximately five percent for the average household. This finding provides novel evidence that (1) water customers respond to more than just the unit price of water and (2) providing more information to water customers does not always induce conservation.
These results beg the immediate question, “why?” One crude explanation is that consumers see a smaller bill each month (compared to previous bi-monthly bills) and perceive, incorrectly, that they used less water that billing period. Another explanation is that consumers are more aware of how much water they are using in a given billing period, and they can better associate the cost of water with their usage. And yet another interpretation is that more frequent billing increases the salience of the price of water, which allows consumers to update their perception of price. Within the last interpretation, if consumers previously thought water was more expensive than it actually is, then more frequent billing may adjust this perception downward.
While the analysis is not well suited to test these hypotheses directly, consumers are arguably better off since they have more information to make decisions and are able to allocate income to uses of water that they find most valuable.
In addition to the primary result of this research, I find differences in consumer responses to the change in billing frequency in two important ways.
- The change in consumption is not temporary. While it appears that the effect is largest in the months directly after the transition, I find evidence that the effect persists throughout the end of the study period. This result suggests that small changes in billing frequency can affect long-term consumer behavior.
- I find that consumers increase consumption more during summer months, which suggests an increase in “non-essential” outdoor water use.
What does this mean for water conservation? The findings of this research undoubtedly raise more questions than solutions. First, evaluation of informative interventions in electricity and water demand have begun to treat these policy tools as robust instruments of conservation, but my results suggest that there may be unintended consequences of the provision of more information in these settings. Second, in a context where shoving is more likely than nudging, we need a better understanding of the mechanisms that drive consumer behavior in response to informative interventions to implement actionable, predictable, and cost-effective policy. Finally, while the results of this study are not encouraging from an environmental perspective, the silver lining is that this research provides an opportunity to rethink what information is provided to consumers on utility bills and how it may affect their behavior.
If something as simple as changing the frequency of water bills can induce a five percent change in water demand, then a carefully constructed information provision could be a boon for the future of water conservation.
