The Tragedy of the Common Heating Bill

In our first webinar of 2025, we are joined by Mateus Souza, who will take us through his research into how changes away from shared heating bills reduces heating usage - as well as his use of machine learning to uncover heterogenous effects.

Abstract

Without heat metering, households face strong free-riding incentives. Using data from Swiss households, we find that the staggered introduction of submetering reduced heating expenses by 17%, on average. Machine learning techniques reveal highly heterogeneous effects, consistent with coordination failure in larger buildings and strategic exit of free-riders. We find that households are price elastic even when they share a common heating bill. Our results suggest that most households do not exploit the free-riding incentive, especially in smaller buildings. "Schmeduling," inattention to the billing regime, and pro-social behavior can explain the low prevalence of free-riding. Nevertheless, submetering is welfare-improving for most buildings.

Bio

Without heat metering, households face strong free-riding incentives. Using data from Swiss households, we find that the staggered introduction of submetering reduced heating expenses by 17%, on average. Machine learning techniques reveal highly heterogeneous effects, consistent with coordination failure in larger buildings and strategic exit of free-riders. We find that households are price elastic even when they share a common heating bill. Our results suggest that most households do not exploit the free-riding incentive, especially in smaller buildings. "Schmeduling," inattention to the billing regime, and pro-social behavior can explain the low prevalence of free-riding. Nevertheless, submetering is welfare-improving for most buildings.