Supporting Carbon Pricing Markets with Probabilistic Cash Rebates

An online incentivized experiment with consumption and carbon emission tradeoffs shows that guaranteed cash rebates reduce private consumption and increase carbon emission offsets. Probabilistic cash rebates have the potential of retaining the behavioral effectiveness of the guaranteed rebates at a fraction of the implementation cost. We test the effectiveness of several probabilistic cash rebates (i.e., 10%, 25% and 50%) and find that the guaranteed rebate produces larger reductions in purchases than all the lottery-based rebates. Although the 50% rebate does not reproduce the full behavioral effect of the guaranteed rebate, it generates substantial reductions in consumption while reducing expected rebate disbursements in half. These findings show a proof of concept for generating economic gains in the tradeoff between behavioral effectiveness and program cost for probabilistic rebates to support carbon-pricing policies.