Tapping into People’s Impatience for Better Environmental Subsidies

This policy brief is concerned with the efficient allocation of subsidies for eco-friendly products. Examples include subsidies for cargo or e-bikes, electric cars, and energy efficient building retrofits. Inefficiencies arise when subsidies are allocated to consumers who would have bought eco-friendly products even without subsidies (inframarginal consumers). This crowds out consumers who buy eco-friendly products only when they are subsidised (marginal consumers). We show how to exploit the relative impatience of inframarginal consumers in order to increase the share of marginal consumers receiving the subsidy – thus increasing the overall efficiency of the subsidy – by lengthening the time between consumer subsidy application and subsidy receipt. We propose a uniform wait time auction which maximizes the number of marginal consumers receiving the subsidy.

Atayev, Atabek, Gian Caspari, Adrian Hillenbrand and Thilo Klein (2023), Tapping into People’s Impatience for Better Environmental Subsidies, ZEW policy brief No. 23-04, Mannheim