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Energy-saving Technology Adoption under Uncertainty in the Residential Sector

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  • Dorothée Charlier
  • Alejandro Mosino
  • Aude Pommeret

Abstract

Home renovation is generally asserted to be a highly effective means for households to lower expenditures on energy. In this sense, home renovation can also be thought as a means to reduce GHG emissions. In this paper we consider a homeowner who makes an irreversible energy-saving investment in an uncertain environment. In a general equilibrium framework, we solve the program of a representative consumer who uses his wealth to invest in the energy-saving technology, to save or to consume energy goods and non-energy goods. Resolution is analytical in a zero discounting case and numerical for the general case, based on collocation and Chebyshev polynomials. In particular, we show that the usual explanation of the energy paradox based on the existence of an option value in partial equilibrium is no longer valid when the analysis is extended to a general equilibrium framework.

Suggested Citation

  • Dorothée Charlier & Alejandro Mosino & Aude Pommeret, 2011. "Energy-saving Technology Adoption under Uncertainty in the Residential Sector," Annals of Economics and Statistics, GENES, issue 103-104, pages 43-70.
  • Handle: RePEc:adr:anecst:y:2011:i:103-104:p:43-70
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    References listed on IDEAS

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    1. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
    2. Dangl, Thomas & Wirl, Franz, 2004. "Investment under uncertainty: calculating the value function when the Bellman equation cannot be solved analytically," Journal of Economic Dynamics and Control, Elsevier, vol. 28(7), pages 1437-1460, April.
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    5. Smith, William & Son, Young Seob, 2005. "Can the desire to conserve our natural resources be self-defeating?," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 52-67, January.
    6. Pommeret, Aude & Schubert, Katheline, 2009. "Abatement Technology Adoption Under Uncertainty," Macroeconomic Dynamics, Cambridge University Press, vol. 13(04), pages 493-522, September.
    7. Banfi, Silvia & Farsi, Mehdi & Filippini, Massimo & Jakob, Martin, 2008. "Willingness to pay for energy-saving measures in residential buildings," Energy Economics, Elsevier, vol. 30(2), pages 503-516, March.
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    Cited by:

    1. Prudence Dato, 2017. "Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behaviour: Evidence from OECD countries," Working Papers 2017.05, FAERE - French Association of Environmental and Resource Economists.
    2. repec:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0053-z is not listed on IDEAS
    3. Prudence Dato, 2017. "Energy Transition Under Irreversibility: A Two-Sector Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 797-820, November.

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