The learning effects of subsidies to bundled goods: a semiparametric approach

TL;DR

This study investigates how temporary subsidies to bundled transportation options can induce long-term demand changes through learning effects, supported by a theoretical model and empirical evidence from a ridesharing experiment.

Contribution

It introduces a semiparametric model capturing learning effects from subsidies and provides empirical validation using a randomized experiment with efficient estimators.

Findings

A 50% discount increased integration demand significantly.

Demand effects persisted over four months.

Approximately 40% of demand increase is due to learning incentives.

Abstract

Can temporary subsidies to bundles induce long-run changes in demand due to learning about the quality of one of the constituent goods? This paper provides theoretical support and empirical evidence on this mechanism. Theoretically, we introduce a model where an agent learns about the quality of an innovation through repeated consumption. We then assess the predictions of our theory in a randomised experiment in a ridesharing platform. The experiment subsidised car trips integrating with a train or metro station, which we interpret as a bundle. Given the heavy-tailed nature of our data, we propose a semiparametric specification for treatment effects that enables the construction of more efficient estimators. We then introduce an efficient estimator for our specification by relying on L-moments. Our results indicate that a ten-weekday 50\% discount on integrated trips leads to a large contemporaneous increase in the demand for integration, and, consistent with our model, persistent changes in the mean and dispersion of nonintegrated app rides. These effects last for over four months. A calibration of our theoretical model suggests that around 40\% of the contemporaneous increase in integrated rides may be attributable to increased incentives to learning. Our results have nontrivial policy implications for the design of public transit systems.