2007 Progress Report: A Conceptual and Empirical Framework for Analyzing Information Disclosure ProgramsEPA Grant Number: R832851
Title: A Conceptual and Empirical Framework for Analyzing Information Disclosure Programs
Investigators: Parry, Ian , Fischer, Carolyn , Lyon, Thomas , Newell, Richard , Oates, Wallace , Siikamäki, Juha
Institution: Resources for the Future , University of Maryland , University of Michigan
EPA Project Officer: Michaud, Jayne
Project Period: September 1, 2006 through August 31, 2008
Project Period Covered by this Report: September 1, 2006 through August 31, 2007
Project Amount: $327,322
RFA: Environmental Behavior and Decisionmaking: Determining the Effectiveness of Environmental Information Disclosure and Provision (2005) RFA Text | Recipients Lists
Research Category: Economics and Decision Sciences
The first objective is to develop a conceptual framework for evaluating a range of environmental information disclosure programs, revealing important “rules of thumb” that drive their effectiveness and the desirable balance between disclosure and direct regulation. Key parameters will be identified, paying close attention to the role of market structure, risk misperception, and stakeholder decisionmaking. The second objective is to develop new empirical estimates of behavioral responses to certain information disclosure programs, specifically energy efficiency labeling. The third objective is to apply the conceptual framework to an array of household appliances and to health and environmental effects of meat, dairy, and vegetable food production and consumption.
The conceptual component will develop a series of analytical models allowing for different channels through which information disclosure can mitigate environmental and health risks. As appropriate, the models will consider competition, multi-product price discrimination, and vertical product differentiation. The major empirical effort will involve an internet-based survey of 800 households on recent and planned equipment purchases, using statistical methods to infer willingness to pay for energy efficiency and the response to several alternative ways of conveying information about energy efficiency. These results, along with other parameter estimates and collected data, will be used to calibrate the analytical models for numerical simulations exploring the costs, benefits, and key drivers of information disclosure programs.
Information disclosure programs are playing an increasingly visible role in environmental protection. They are particularly appealing to policymakers, as they avoid transactions costs (e.g., interest group lobbying costs) and policy compromises (e.g., provisions excluding firms with older capital) associated with direct pollution controls. However, the lack of a unifying conceptual framework for understanding the potential for disclosure programs to achieve environmental and health objectives—and of empirical evidence on behavioral responses in key program areas—is a major obstacle to assessing their appropriate role in the broader suite of measures for environmental protection. This project will develop and apply such a conceptual framework, as well as providing new empirical evidence on program effectiveness.
Ian Parry and Wallace Oates are developing analytical models of information disclosure programs in the context of organic food and household appliances. In the agricultural application, they have developed a model where households consume four types of food, which can either be organic or non-organic, and produced by traditional, small-scale farming methods, or by large, concentrated operations. Non-organic food carries a health risk from chemical residue, while large-scale farms, and non-organic methods, pose more serious environmental and ethical problems. Government information programs help consumers with different attitudes and susceptibility towards health risks to distinguish between organic and non-organic foods and the government may also subsidize organic and traditional farming methods, and set environmental regulations on farms (e.g., on allowable use of pesticides or hormone-enhancing antibiotics). The model has been used to derive intuitive and empirically useful formulas for the welfare effects, or benefits less costs, of environmental regulations, information provision, and possible incentives for organic produce and traditional farm methods. Currently, the authors are extensively reviewing the agricultural and food safety literature (with the help of Sandra Hoffman, a food safety expert) to assess appropriate parameters values for applying the analysis to various livestock and vegetable products.
Carolyn Fischer and Tom Lyon have been collaborating on a study of competing voluntary information regimes. They are analyzing the stringency of ecolabeling regimes that would be chosen by NGOs, which presumably would like to minimize harm to the environment, as compared to those chosen by industry or trade groups, whose goal is to maximize profits. They show that industry groups will target lower stringency and greater participation than NGOs. They are also studying how the two kinds of labels may compete with each other. In the presence of an NGO label, the industry will choose a less stringent standard than if it acted alone. However, in the presence of an industry ecolabel, the NGO may want to raise or lower the standards for its label, depending on the distribution of firms, which determines the trade-offs between reduced environmental harm among the participants and loss of participation from the NGO label to the industry one. The paper is currently in working draft form.
Richard Newell and Juha Siikamäki are examining to what extent information disclosure programs promote the adoption of energy-efficientappliancesby US households. This research involvesa survey of households’ purchasing behavior, which the authors are currently preparing for. They areconducting a literature review of past studies in several fields: households’ appliance purchase behavior and the role of energy efficiency in it; estimation of individual discount rates; performance of alternative labeling programs; and the use of stated preference surveys to collect data on purchasing behavior. The review of individual studies is nearly complete and the overall review will be completed in early 2008. Besides academic literature, the literature review covers regulatory documents and data sources regarding household appliance purchases, labeling, and energy-efficiency. The recent FTC ruling on Energy Guide labels (final ruling in August 2007), which involved a survey of households’ perceptions about alternative Energy Guide labels, is particularly useful for the purposes of this research.
Parry and Oates will complete their parameter compilation for the agricultural application for a selection of dairy, meat and vegetable products. This data synthesis will then be used to simulate the formulas of their analytical model in a spreadsheet to quantify the net benefits from information disclosure programs, environmental regulations and the appropriate balance between the two approaches to dealing with environmental and health hazards. They will also develop a somewhat analogous model of consumer choice among different household appliances like refrigerators and air conditioners, where more efficient appliances yield environmental benefits and energy savings. The model will consider a range of difference scenarios for how consumers value future energy savings, reflecting the spectrum of professional opinion on this issue. Again, data will be collected and synthesized to empirically implement formulas derived for the net benefits of information disclosure programs that better educate consumers about energy saving benefits, as well as for regulations like energy efficiency standards for appliances. Results from the survey on the effects of energy efficiency labeling will feed into this modeling framework.
Fischer and Lyon will extend their analytical results with some simulations to better understand the role of the distribution of firm participation costs. A discussion paper version is expected by summer. Richard Newell and Juha Siikamäki will complete their literature review and will then design, test, administer, and analyze a computer assisted survey of US households and their appliance purchasing behavior. The survey administration is expected to take place in later spring-early summer, and a discussion paper of the survey results is expected by late summer or early fall.
Changes in scope or objectives
The only significant change is the application of the analytical framework in the specific context of agriculture. The original proposal suggested other applications such as to smog and mercury alerts; however, in the judgment of the investigators the required data to calibrate the model to these examples is not solid enough. In contrast, there is enough credible empirical literature, from a variety of sources, to draw on for the applications in the context of food and household appliances.
There have been no changes in personnel, and no major obstacles to making progress on the project.