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Willingness to Pay for Energy Conservation and Free-Ridership on Subsidization: Evidence from Germany

  • Peter Grosche
  • Colin Vance

Understanding the determinants of home-efficiency improvements is significant to a range of energy policy issues, including the reduction of fossil fuel use and environmental protection. This paper analyzes retrofit choices by assembling a unique data set merging a nationwide household survey from Germany with regional data on wages and construction costs. To explore the influence of both heterogeneous preferences and correlation among the utility of alternatives, we estimate conditional-, random parameters-, and error components logit models that parameterize the influence of costs, energy savings, and household-level socioeconomic attributes on the likelihood of undertaking one of 16 renovation options. We use the model coefficients to derive household-specific marginal Willingness to Pay estimates, and with these assess the extent to which free-ridership may undermine the effectiveness of recently implemented programs that subsidize the costs of retrofits.

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Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 30 (2009)
Issue (Month): Number 2 ()
Pages: 135-154

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Handle: RePEc:aen:journl:2009v30-02-a07
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  1. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
  2. Ioannides, Yannis M., 2002. "Residential neighborhood effects," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 145-165, March.
  3. 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.
  4. Brownstone, David & Train, Kenneth, 1998. "Forecasting new product penetration with flexible substitution patterns," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 109-129, November.
  5. Joskow, P.L. & Marron, D.B., 1991. "What does a Negawatt Really Cost?," Working papers 596, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Quigley, John M & Rubinfeld, Daniel L, 1989. "Unobservables in Consumer Choice: Residential Energy and the Demand for Comfort," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 416-25, August.
  7. David A. Hensher & Stewart Jones & William H. Greene, 2007. "An Error Component Logit Analysis of Corporate Bankruptcy and Insolvency Risk in Australia," The Economic Record, The Economic Society of Australia, vol. 83(260), pages 86-103, 03.
  8. Gilbert E. Metcalf & Kevin A. Hassett, 1997. "Measuring the Energy Savings from Home Improvement Investments: Evidence from Monthly Billing Data," NBER Working Papers 6074, National Bureau of Economic Research, Inc.
  9. Train, Kenneth E., 1994. "Estimation of net savings from energy-conservation programs," Energy, Elsevier, vol. 19(4), pages 423-441.
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