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Individual Time Preferences and Energy Efficiency

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  • Richard G. Newell
  • Juha Siikamäki

Abstract

We examine the role of individual discount rates in energy efficiency decisions using evidence from an extensive survey of US homeowners to elicit preferences for energy efficiency and cash flows over time. We find considerable heterogeneity in individual discount rates. We also find that individual time preferences systematically influence willingness to invest in energy efficiency, as measured through product choices, required payback periods, and energy efficiency tax credit claims. Education is a key driver of individual discount rates. Our findings highlight the importance of individual discount rates to understanding energy efficiency investments, the energy-efficiency gap, and policy evaluation.

Suggested Citation

  • Richard G. Newell & Juha Siikamäki, 2015. "Individual Time Preferences and Energy Efficiency," American Economic Review, American Economic Association, vol. 105(5), pages 196-200, May.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:5:p:196-200
    Note: DOI: 10.1257/aer.p20151010
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    References listed on IDEAS

    as
    1. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    2. Richard G. Newell & Juha Siikamäki, 2014. "Nudging Energy Efficiency Behavior: The Role of Information Labels," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(4), pages 555-598.
    3. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer;Economic Science Association, vol. 2(2), pages 107-127, December.
    4. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
    5. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Andreas Ziegler, 2018. "Heterogeneous preferences and the individual change to alternative electricity contracts," MAGKS Papers on Economics 201827, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Olsthoorn, Mark & Schleich, Joachim & Gassmann, Xavier & Faure, Corinne, 2017. "Free riding and rebates for residential energy efficiency upgrades: A multi-country contingent valuation experiment," Energy Economics, Elsevier, vol. 68(S1), pages 33-44.
    3. repec:kap:enreec:v:71:y:2018:i:3:d:10.1007_s10640-017-0179-7 is not listed on IDEAS
    4. Monica Novackova & Richard S.J. Tol, 2018. "Climate Change Awareness and Willingness to Pay for its Mitigation: Evidence from the UK," Working Paper Series 0318, Department of Economics, University of Sussex Business School.
    5. repec:eee:eneeco:v:80:y:2019:i:c:p:377-393 is not listed on IDEAS
    6. Jindrich Matousek, 2018. "Individual Discount Rates: A Meta-Analysis of the Experimental Evidence," Working Papers IES 2018/40, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2018.
    7. repec:nbr:nberch:14213 is not listed on IDEAS
    8. Schleich, Joachim & Gassmann, Xavier & Faure, Corinne & Meissner, Thomas, 2016. "Making the implicit explicit: A look inside the implicit discount rate," Energy Policy, Elsevier, vol. 97(C), pages 321-331.
    9. Mundada, Aishwarya S. & Prehoda, Emily W. & Pearce, Joshua M., 2017. "U.S. market for solar photovoltaic plug-and-play systems," Renewable Energy, Elsevier, vol. 103(C), pages 255-264.
    10. Pasquali, Andrea & Klinge Jacobsen, Henrik, 2019. "Construction of energy savings cost curves: An application for Denmark," MPRA Paper 93076, University Library of Munich, Germany.
    11. Arik Levinson, 2016. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," NBER Chapters,in: Energy Policy Tradeoffs between Economic Efficiency and Distributional Equity National Bureau of Economic Research, Inc.
    12. Werthschulte, Madeline & Löschel, Andreas, 2019. "Cost misperceptions and energy consumption: Experimental evidence for present bias and biased price beliefs," CAWM Discussion Papers 111, University of Münster, Center of Applied Economic Research Münster (CAWM).
    13. Donald S. Kenkel & Sida Peng & Michael F. Pesko & Hua Wang, 2017. "Mostly Harmless Regulation? Electronic Cigarettes, Public Policy and Consumer Welfare," NBER Working Papers 23710, National Bureau of Economic Research, Inc.
    14. Schleich, Joachim & Gassmann, Xavier & Meissner, Thomas & Faure, Corinne, 2019. "A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies," Energy Economics, Elsevier, vol. 80(C), pages 377-393.
    15. repec:spr:epolin:v:46:y:2019:i:1:d:10.1007_s40812-018-0107-z is not listed on IDEAS
    16. Urs Fischbacher & Simeon Schudy & Sabrina Teyssier, 2015. "Heterogeneous Preferences and Investments in Energy Saving Measures," TWI Research Paper Series 95, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    17. David Bradford & Charles Courtemanche & Garth Heutel & Patrick McAlvanah & Christopher Ruhm, 2017. "Time preferences and consumer behavior," Journal of Risk and Uncertainty, Springer, vol. 55(2), pages 119-145, December.
    18. Olsthoorn, Mark & Schleich, Joachim & Faure, Corinne, 2019. "Exploring the diffusion of low-energy houses: An empirical study in the European Union," Energy Policy, Elsevier, vol. 129(C), pages 1382-1393.
    19. repec:eee:eecrev:v:114:y:2019:i:c:p:19-53 is not listed on IDEAS
    20. Zack Dorner & Daniel A. Brent & Anke Leroux, 2016. "Preferences for Intrinsically Risky Attributes," Monash Economics Working Papers 32-16, Monash University, Department of Economics.
    21. repec:eee:enepol:v:111:y:2017:i:c:p:75-84 is not listed on IDEAS
    22. Houde, Sebastien & Aldy, Joseph E., 2017. "The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies," Working Paper Series rwp17-047, Harvard University, John F. Kennedy School of Government.
    23. Garth Heutel, 2017. "Prospect Theory and Energy Efficiency," NBER Working Papers 23692, National Bureau of Economic Research, Inc.
    24. Ziegler, Andreas, 2018. "Heterogeneous preferences and the individual change to alternative electricity tariffs," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181604, Verein für Socialpolitik / German Economic Association.
    25. repec:eee:eejocm:v:29:y:2018:i:c:p:1-16 is not listed on IDEAS

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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