Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach
AbstractThe economic models that prescribe Pigovian taxation as the first-best means of reducing energy-related externalities and argue that taxes are superior to energy efficiency standards are typically based on the neoclassical model of rational consumer choice. Yet, observed consumer behavior with regards to energy use and the purchase of energy-using durable goods is generally thought to be far from efficient, giving rise to the concept of the “energy-efficiency gap.” In this paper, we present a welfare analysis of Pigovian taxes and energy efficiency standards that is based on an alternative, time-consistent behavioral model. We adapt the model of temptation and self-control of Gul and Pesendorfer (2001, 2004) to the context of the purchase of energy-using durable goods. Our results suggest that (i) temptation or self-control might be a contributing factor in explaining the energy-efficiency gap, (ii) standards might be used as a commitment device to address inefficiencies in consumer choice that stem from temptation, and (iii) in the presence of temptation, a policy that combines standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Connecticut, Department of Economics in its series Working papers with number 2011-24.
Length: 44 pages
Date of creation: Dec 2011
Date of revision:
Contact details of provider:
Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
behavioral economics; temptation; self-control; time-consistent preferences; energy-efficiency gap; energy efficiency standards; Pigovian taxes;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-ENE-2012-01-03 (Energy Economics)
- NEP-EVO-2012-01-03 (Evolutionary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Parry, Ian W.H. & Evans, David A. & Oates, Wallace E., 2010.
"Are Energy Efficiency Standards Justified?,"
dp-10-59, Resources For the Future.
- Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009.
"Energy Efficiency Economics and Policy,"
Annual Review of Resource Economics,
Annual Reviews, vol. 1(1), pages 597-620, 09.
- Gillingham, Kenneth & Newell, Richard G. & Palmer, Karen, 2009. "Energy Efficiency Economics and Policy," Discussion Papers dp-09-13, Resources For the Future.
- Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009. "Energy Efficiency Economics and Policy," NBER Working Papers 15031, National Bureau of Economic Research, Inc.
- Jianjun Miao, 2004.
"Option Exercise with Temptation,"
- Junjian Miao, 2005. "Option Exercise with Temptation," Boston University - Department of Economics - Working Papers Series WP2005-007, Boston University - Department of Economics.
- David Laibson & Andrea Repetto & Jeremy Tobacman, 2005.
"Estimating Discount Functions with Consumption Choices over the Lifecycle,"
784828000000000643, UCLA Department of Economics.
- David Laibson & Andrea Repetto & Jeremy Tobacman, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Documentos de Trabajo 236, Centro de Economía Aplicada, Universidad de Chile.
- Jeremy Tobacman & David Laibson, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Economics Series Working Papers 341, University of Oxford, Department of Economics.
- David Laibson & Andrea Repetto & Jeremy Tobacman, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," NBER Working Papers 13314, National Bureau of Economic Research, Inc.
- Heutel, Garth, 2010.
"Optimal Policy Instruments for Externality-Producing Durable Goods under Time Inconsistency,"
10-5, University of North Carolina at Greensboro, Department of Economics.
- Garth Heutel, 2011. "Optimal Policy Instruments for Externality-Producing Durable Goods Under Time Inconsistency," NBER Working Papers 17083, National Bureau of Economic Research, Inc.
- Kevin X.D. Huang & Zheng Liu & John Q. Zhu, 2007.
"Temptation and Self-Control: Some Evidence and Applications,"
Vanderbilt University Department of Economics Working Papers
0711, Vanderbilt University Department of Economics.
- Kevin X.D. Huang & Zheng Liu & John Q. Zhu, 2013. "Temptation and self-control: some evidence and applications," Working Paper Series 2013-23, Federal Reserve Bank of San Francisco.
- Kevin X. D. Huang & Zheng Liu & Qi Zhu, 2006. "Temptation and self-control: some evidence and applications," Staff Report 367, Federal Reserve Bank of Minneapolis.
- Xavier Labandeira Villot & Pedro Linares, 2009.
"Energy Efficiency: Economics and Policy,"
- repec:nbr:nberwo:16114 is not listed on IDEAS
- Lucas W. Davis, 2008. "Durable goods and residential demand for energy and water: evidence from a field trial," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 530-546.
- Walter McManus, 2007. "The Link Between Gasoline Prices and Vehicle Sales," Business Economics, Palgrave Macmillan, vol. 42(1), pages 53-60, January.
- Sorrell, Steve & Dimitropoulos, John & Sommerville, Matt, 2009. "Empirical estimates of the direct rebound effect: A review," Energy Policy, Elsevier, vol. 37(4), pages 1356-1371, April.
- Kamhon Kan, 2006.
"Cigarette smoking and self-control,"
IEAS Working Paper : academic research
06-A004, Institute of Economics, Academia Sinica, Taipei, Taiwan.
- McConnell, Virginia, 2013. "The New CAFE Standards: Are They Enough on Their Own?," Discussion Papers dp-13-14, Resources For the Future.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kasey Kniffin).
If references are entirely missing, you can add them using this form.