Does Better Information Lead to Better Choices? Evidence from Energy-Efficiency Labels

Information provision is a key element of government energy-efficiency policy, but the information that is provided is often too coarse to allow consumers to make efficient decisions. An important example is the ubiquitous yellow "Energy Guide" label, which is required by law to be displayed on all major appliances sold in the United States. These labels report energy cost information based on average national usage and energy prices. We conduct an online randomized controlled trial to measure the potential benefits from providing more accurate information. We find that state-specific labels lead to significantly better choices. Consumers invest about the same amount overall in energy-efficiency, but the allocation is much better with more investment in high-usage high-price states and less investment in low-usage low-price states. The implied aggregate cost savings are larger than any reasonable estimate of the cost of implementing state-specific labels.