An important factor driving energy policy over the past two decades has been the Energy Paradox,' the perception that consumers apply unreasonably high hurdle rates to energy saving investments. We explore one possible explanation for this apparent puzzle: that realized returns fall short of the returns promised by engineers and product manufacturers. Using a unique data set, we find that the realized return to attic insulation is statistically significant, but the median estimate (12.3 percent) is close to a discount rate for this investment implied by a CAPM analysis. We conclude that the case for the Energy Paradox is weaker than has previously been believed.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
6074.
Length: Date of creation: Jun 1997 Date of revision: Publication status: published as Review of Economics and Statistics, Vol. 81, no. 3 (1999): 516-528. Handle: RePEc:nbr:nberwo:6074
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Find related papers by JEL classification: E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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