Job Market Paper

The Welfare Costs of Misaligned Incentives: Energy Inefficiency and the Principal-Agent Problem [online appendix]

  • In many settings, misaligned incentives and inadequate monitoring lead employees to take self-interested actions contrary to their employer’s wishes, giving rise to the classic principal-agent problem. In this paper, I identify and quantify the costs of misaligned incentives in the context of an energy efficiency appliance replacement program. I show that contractors (agents) hired by the electric utility (the principal) increase their compensation by intentionally misreporting program data to deliberately authorize replacement of non-qualified refrigerators. I provide empirical estimates of the impacts of misaligned incentives on (1) the effectiveness of energy efficiency retrofits and (2) welfare. I estimate that unqualified replacements reduce welfare by an average of $106 and save only half as much electricity as replacements that follow program guidelines. The same program without a principal-agent distortion would increase welfare by $60 per replacement. The results provide novel evidence of how principal-agent distortions in the implementation of a potentially beneficial program can undermine its value.

Working Papers

Making the Best of the Second-Best: Welfare Consequences of Time-Varying Electricity Prices
[online appendix]

  • This paper examines the extent to which small commercial and industrial establishments respond to a four-hour increase in retail electricity prices invoked by individual utilities during peak demand periods 15 times per year. This policy is intended to reduce electricity consumption when generation costs are highest. I find that the approximately tripled prices reduce establishment peak electricity usage by 13.5%. Using a model of capacity investment decisions, I find the program delivers 44% of the benefits of the first-best policy of continuously varying prices and suggest two simple improvements in program design that could nearly double these welfare gains.

Works in Progress

Creating Comfort in a Warming World: The Role of Smart Thermostats (with Karen Palmer, Andrew Royal, Margaret Walls, and Casey Wichman)

Environmental Regulation and Job Loss Spillovers: Evidence from Appalachia

Publications

Burtraw, Dallas, Margaret Walls, and Joshua Blonz. 2010. “Distributional Impacts of Carbon Pricing Policies in the Electricity Sector,” U.S. Energy Tax Policy, Gilbert E. Metcalf (Ed.). Cambridge University Press.

Blonz, Joshua, Dallas Burtraw, and Margaret A. Walls. 2010. “Climate Policy's Uncertain Outcomes for Households: The Role of Complex Allocation Schemes in Cap-and-Trade,” The B.E. Journal of Economic Analysis & Policy 10(2): Article 5.

Blonz, Joshua, Dallas Burtraw, and Margaret Walls. 2012. “Social safety nets and US climate policy costs,'' Climate Policy, 12:4, 474-490.