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Climate Economics Seminar: The Micro-behavioral Economics of Resource-conserving Technologies: Water Efficiency and Climate Change Adaptation

Date and Time

Thursday 05/19/2016 2:30PM to 4:00PM EDT
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Room 4128, William Jefferson Clinton West Building
1301 Constitution Ave., NW
Washington, DC 20001


Contact: Carl Pasurka, 202-566-2275

Presenter: Paul Ferraro (Carey Business School and Whiting School of Engineering, Johns Hopkins University)

Description: Resource-conserving technologies provide the same level of services as status-quo technologies, but with fewer inputs. Examples include energy-efficient appliances, fuel-efficient vehicles and cook-stoves, water-efficient appliances and fixtures, and input-efficient (precision) agriculture and forestry. These technologies are widely promoted as cost-effective and politically-acceptable ways to achieve economic development and environmental objectives. Yet the arguments in favor of public programs to encourage the adoption of these resource-conserving technologies is based on incomplete models of human behavior. We develop a more complete theory of behavior, drawing from economics, psychology and sociology, and report preliminary results from a randomized controlled trial to test the impact of water-efficient technology adoption on water use and household welfare. Encouraging humans to adopt technologies that use less water per unit of activity has been highlighted in numerous government and multilateral plans as a key component of climate change adaptation strategies (UN, 2010; FAO, 2014). For example, a State of California report (2008) urges the region to “aggressively increase water use efficiency” for climate change adaptation. In a drought-prone area of Central America that is forecasted to experience more frequent droughts in the future, engineers have estimated that more efficient technologies in rural homes will reduce water use by up to 35%. Two prominent reasons why such technologies may change water use in ways not predicted by engineers: (a) residents change their behavior after adopting new technology (e.g., rebound, moral licensing, and priming effects); and (b) dis-adoption of the technology. To test hypotheses related to dis-adoption, we randomly offered some households a performance bonus for continuing to use the technology for up to six months. The experimental estimate is economically and statistically different from the engineering estimates, including enhanced engineering estimates based on field testing in homes in the study area. Combining theory, survey data and the experimental estimates, we elucidate some of the reasons why the empirically estimated impacts from the experimental estimator differ from the predicted impacts from the engineering estimation approach. We also examine the household welfare effects and assess the claim of a “water efficiency gap,” whereby households are failing to adopt privately optimal, water-efficient technologies.