Abstract:
Many goods are paid by bill. While for these goods consumption benefits are immediate, the payment of costs is shifted into the future. An intertemporal trade-off evolves which might give rise to present biased overconsumption of the respective good. In a lab experiment with 170 students, I investigate present biased overconsumption due to bill payment by experimentally varying the timing of paying consumption costs. Costs are either paid immediately or one week after consumption. My results indicate that bill payment significantly increases consumption on average by 13%. As I am able to control for contaminating information or salience effects, these results are attributed to the change in discounting. I argue that such effect sizes for one-week discounting are consistent with (quasi-) hyperbolic but not with exponential discounting. These results question the use of billing schemes, particularly when externalities of consumption are involved as for the case of energy. Overcoming bill payment will then align both society's and one's own interest to consume less. |