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Willingness to pay and price elasticities of demand for energy-efficient appliances: Combining the hedonic approach and demand systems

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  • Galarraga, Ibon
  • González-Eguino, Mikel
  • Markandya, Anil

Abstract

This article proposes a combined approach for estimating willingness to pay for the attributes represented by energy efficiency labels and providing reliable price elasticities of demand (own and cross) for close substitutes (e.g. those with low energy efficiency and those with higher energy efficiency). This is done by using the results of the hedonic approach together with the Quantity Based Demand System (QBDS) model. The elasticity results obtained with the latter are then compared with those simulated using the Linear Almost Ideal Demand System (LA/AIDS). The methodology is applied to the dishwasher market in Spain: it is found that 15.6% of the final price is actually paid for the energy efficiency attribute. This accounts for about €80 of the average market price. The elasticity results confirm that energy efficient appliances are more price elastic than regular ones.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): S1 ()
Pages: S66-S74

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Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s66-s74

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Demand systems; Hedonic method; Energy efficiency labelling; Household appliances (dishwashers);

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Cited by:
  1. Panzone, Luca A., 2013. "Saving money vs investing money: Do energy ratings influence consumer demand for energy efficient goods?," Energy Economics, Elsevier, vol. 38(C), pages 51-63.
  2. Lopez, Ramon E. & Yoon, Sang Won, 2013. "Sustainable Economic Growth: Structural Transformation with Consumption Flexibility," Working Papers 142561, University of Maryland, Department of Agricultural and Resource Economics.
  3. Galarraga, Ibon & Abadie, Luis M. & Ansuategi, Alberto, 2013. "Efficiency, effectiveness and implementation feasibility of energy efficiency rebates: The “Renove” plan in Spain," Energy Economics, Elsevier, vol. 40(S1), pages S98-S107.
  4. Kusaka, Wakana & Kojima, Michikazu & Watanabe, Mariko, 2012. "Environmental consciousness, economic gain and consumer choice of energy efficient appliances in Thailand, China and India," IDE Discussion Papers 345, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  5. Ibon Galarraga & Josu Lucas, 2013. "Economic Evaluation of Energy Efficiency Labelling in Domestic Appliances: the Spanish Market," Working Papers 2013-08, BC3.

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