Asymmetric information and the energy-efficiency of durable goods: Evidence from cooking stoves in India

Liquid Petroleum Gas (LPG) is a modern cooking fuel, which is convenient, reliable, and does not, like many traditional fuels, pollute one’s kitchen and lungs. For these benefits, 15 million Indians are adopting LPG every year. The Government of India heavily subsidises LPG in order to induce households to switch from dirtier fuels like kerosene and aims to raise adoption of LPG from 50% in 2009 to 75% by 2015 (MoPNG, 2009).

Despite the many benefits of LPG, it will be difficult to meet these targets, because of its high cost relative to traditional fuels. We can mold and dry a cake of cow-dung, a traditional fuel, with nothing but our own labour, but LPG does not come for free. At market prices, LPG is difficult for many Indians to afford, and, at the subsidised prices in India, it is a fiscal backbreaker for the government.

One way to improve access while reducing cost is to increase the efficiency of energy use. Many countries promote efficiency by providing information on appliance efficiency, in order to reduce the asymmetry of information between vendors and customers and boost customer demand for efficiency. Star-labeled stoves are stoves that have been certified as efficient by the Government of India via a prominent label (like the US “energy star”). The first stoves have just been certified, but they are not yet sold in the market.

This study will measure the effect of an energy-star label for LPG stoves on customer demand for more efficient models. The main research questions are: Does the energy star-label affect customer decisions on which stove to buy? If so, what is the demonstrated willingness to pay for a star-labeled stove? The research design is a large, market-level randomised field experiment that partners with the distributor networks of oil marketing companies (OMCs) in semi-urban markets across three states. The primary intervention will be providing customers with information on the thermal efficiency of stoves. The experiment will vary the availability, labeling, and price of these stoves upon their roll-out, in order to place a monetary value on the star-label in terms of the reduction in asymmetric information in the market.

On the academic side, the study will innovate by measuring the monetary cost of asymmetric information for energy-using durables in a randomised-controlled trial. Past studies on asymmetric information in durables have not clearly isolated the value of information itself, and have often been conducted in environments where consumers already have a lot of information on appliance efficiency. This project evaluates a labeling program at the very start using actual purchase decisions on a large-scale. On the policy side, India has founded a Bureau of Energy Efficiency and begun labeling programmes, but does not have clear evidence on their benefits. As a result, the status of these programmes—whether they should exist, be voluntary, or be mandatory—is uncertain. This study will resolve this uncertainty in order to shape the design of information-based energy-efficiency programs and improve access to modern sources of energy.

Outputs

  • Research in progress.

    Project last updated on: 18 Sep 2015.