Conspicuous Conservation: The Prius Effect

In his book, "The Theory of the Leisure Class" (1899), the economist and sociologist Thorstein Veblen coined the term conspicuous consumption, by which he meant the lavish spending of people on goods and services in order to show off (i.e., signal) their wealth. That is, they buy expensive items not because they can but because they want others to know that they can. A recent example of this is reflected in the popularity of Hummers a few years ago. While some who bought them probably did need them, it's likely that many who did, did so merely to show others that they could. No doubt, many of these folks rationalized their purchases away, convincing themselves that it was a rational thing to do and that they weren't engaging in conspicuous consumption, but that's a topic for another day.

A variation on this phenomenon is what Alison and Steve Sexton (twins, not spouses), two Ph.D. candidates in economics, refer to as conspicuous conservation. While conspicuous consumption signals how much green you have, conspicuous conservation signals how green you are. It occurs when people spend their money on "green" items, not because by doing so they help the environment (although they might), but because by doing so they show off their "greenness," what the Sextons refer to as "environmental bona fides." Examples include prominently carrying “I’m not a plastic bag” bags so that others can see, placing tiny windmills on your roof even though they generate virtually no electricity (like British Prime Minister David Cameron did), or installing solar panels on the side of your house facing the street even if it doesn't get the most sun (it's hard to believe, but people actually do that).

In their paper, “Conspicuous Conservation: The Prius Effect and Willingness to Pay for Environmental Bona Fides,” the Sextons focus on the Prius. Why? Because unlike most hybrids, it is obviously one:

The Honda Civic hybrid looks like a regular Honda Civic. The Ford Escape hybrid looks like a Ford Escape. And so, our hypothesis is that if the Prius looked like a Toyota Camry or a Toyota Corolla that it wouldn’t be as popular as it is. And so what we set out to do in this paper is to test that empirically ("Hey Baby, Is That a Prius You’re Driving?").

They were curious as to how much value that people who "lean green" place on being seen "leaning green?" They found that the Prius’s “green halo” effect was quite large. More specifically, the discovered that some people buy a Prius rather than another hybrid, not because it gets better performance (its performance is virtually identical to that of the Civic), but because when you buy one, everyone knows (because of its unique design) that you've bought a hybrid (and thus know that you're environmentally conscious). That's not the case when you by a Honda Civic hybrid; because it looks just like a regular Honda civic, unless you tell your neighbors that it's a hybrid, they may never know.

The Prius effect is even more pronounced in green neighborhoods (i.e., environmentally conscious communities). In other words, people are more likely to buy a Prius (as opposed to a Civic) when they live in neighborhoods where doing so is likely to garner their neighbor's approval (e.g., Berkeley, CA) than when they live in neighborhoods where doing so is not (e.g. Crawford, TX).

The Sextons weren't the first to figure this out. South Park made fun of the "Prius Effect" in 2006 with its "Smug Alert" episode.

To be clear, the Sextons are not claiming that everybody buys "green" simply to show off how green they are. But, if everyone was only buying because they are green rather than showing others how green they are, then it is unlikely that there would be such a disparity between the purchase of Prius's and other hybrids. Nor would people be putting useless windmills on their roofs or installing solar panels on the shady sides of their houses that happen to face the street.

All of this is nicely summarized in a recent Freakonomics podcast. You can listen to it at the Freakonomics blog ("Hey Baby, Is That a Prius You’re Driving?"), download it from iTunes, get the RSS feed, or read the transcript.