"A Comparison of Contests and Contracts to Deliver Cost-Effective Energy Conservation"
Abstract: Incentivizing costly, but imperfectly observable effort is a long-standing economic problem. We conduct a field experiment in Hanoi, Vietnam where we randomize households into tiered contracts and contests to induce energy conservation. We find that both contests and contracts achieve similar energy savings relative to a pure control group but contests are twice as cost-effective. We build a model of energy consumption and estimate it using our experimental variation. Counterfactual simulations reveal that under most conditions where effort (abatement) is only partially correlated with observed measures of performance (energy use), contests dominate as incentives for energy conservation. We discuss potential implications for wide-spread policies on demand-side management in the residential electricity sector.