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Energy Use By Apartment Tenants When Landlords Pay For Utilities

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Energy costs are included in the monthly rent of one fourth of U.S. apartment residents. Because these tenants do not face the marginal cost of their own energy use, they have little incentive to use energy efficiently. Explanations for this apparent market failure fall into two categories: the tenants value such arrangements more than they value the extra energy, or the landlords value the arrangements more than the cost of the extra energy. We use data from the U.S. Department of Energy's Residential Energy Consumption Survey and the Census Bureau's American Housing Survey to estimate energy consumption by tenants in utility-included apartments, and the rent premium for those apartments. While market rents for utility-included apartments are higher than for otherwise similar metered apartments, the difference is smaller than the cost of the energy used, a finding that supports landlord-side explanations for the persistence of these seemingly inefficient rental contracts.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~01-01-09.

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Date of creation: 09 Jan 2001
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Handle: RePEc:geo:guwopa:gueconwpa~01-01-09

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Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
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Web page: http://econ.georgetown.edu/

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Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036
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Web: http://econ.georgetown.edu/

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  1. Gilbert E. Metcalf & Kevin A. Hassett, 1999. "Measuring The Energy Savings From Home Improvement Investments: Evidence From Monthly Billing Data," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 516-528, August.
  2. Friedman, David, 1987. "Cold Houses in Warm Climates and Vice Versa: A Paradox of Rational Heating," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1089-97, October.
  3. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
  4. Dewees, Donald N & Wilson, Thomas A, 1990. "Cold Houses and Warm Climates Revisited: On Keeping Warm in Chicago, or Paradox Lost: Comment," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 656-63, June.
  5. Jaffe, Adam B. & Stavins, Robert N., 1994. "The energy paradox and the diffusion of conservation technology," Resource and Energy Economics, Elsevier, vol. 16(2), pages 91-122, May.
  6. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  7. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  8. Hassett, Kevin A. & Metcalf, Gilbert E., 1995. "Energy tax credits and residential conservation investment: Evidence from panel data," Journal of Public Economics, Elsevier, vol. 57(2), pages 201-217, June.
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