Assessing synergy of incentives and nudges in the energy policy mix

Abstract

Should policy-makers combine price incentives with behavioural nudges to encourage sustainable energy behaviour? Available evidence from various behavioural sciences is scarce and inconclusive about synergy of the two instruments. This is partly due to methodological limitations. We offer a framework to overcome such limitations in future research and to guide policy-making. It includes four cases: no synergy, positive synergy, weak negative synergy, and strong negative synergy or backfire. The adoption of a policy mix is recommended in the first two cases, and may be pursued in the third case. To clarify the underlying mechanisms of the synergy, a distinction is made between crowding (in/out) of intrinsic motivations by incentives and crowding (in/out) of extrinsic motivations by nudges. This distinction turns out to be especially relevant in the case of weakly negative synergy, as here behavioural and temporal spillover effects require consideration from the policy-maker as well. We end with broader reflections regarding other policy criteria for the design of an adequate energy policy mix.