The Tragedy of the Common Heating Bill

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.