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Energy Utilities, Conservation, And Economic Efficiency

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  • VINAYAK Bhattacharjee
  • CHARLES J. Cicchetti
  • WILLIAM F. Rankin

Abstract

Academic and policy debate has centered around an apparent “underinvestment in conservation.” This paper outlines traditional explanations for underinvestment and presents a prospect theory analysis of individual conservation behavior. On the basis of investment criteria, individuals seem to discriminate against conservation investments. While these decisions might appear rational as life style decisions, individual choice across different household appliances shows little consistency. For policymaking purposes, understanding and modeling actual behavior is crucial to maximizing social welfare. The insight of certain positive models of human behavior supports economic efficiency arguments for marketplace intervention. This paper argues that because individuals making conservation investment decisions apparently do not act according to the dictates of utilitarian economics, utility sponsored conservation programs are justified on economic efficiency grounds. Finally, in light of prospect theory considerations, the paper suggests marketing guidelines for conservation investments sponsored by electric utilities.

Suggested Citation

  • VINAYAK Bhattacharjee & CHARLES J. Cicchetti & WILLIAM F. Rankin, 1993. "Energy Utilities, Conservation, And Economic Efficiency," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 69-75, January.
    • Handle: RePEc:bla:coecpo:v:11:y:1993:i:1:p:69-75
    DOI: 10.1111/j.1465-7287.1993.tb00371.x
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    References listed on IDEAS

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    Cited by:

    1. Barbara Praetorius & Jan W. Bleyl, 2003. "Improving the Institutional Structures for Disseminating Energy Efficiency in Emerging Nations: Energy Agencies in South Africa," Discussion Papers of DIW Berlin 347, DIW Berlin, German Institute for Economic Research.
    2. Edwards, Kimberley D., 1996. "Prospect theory: A literature review," International Review of Financial Analysis, Elsevier, vol. 5(1), pages 19-38.
    3. Almeida, Mauro Araujo & Schaeffer, Roberto & La Rovere, Emilio Lèbre, 2001. "The potential for electricity conservation and peak load reduction in the residential sector of Brazil," Energy, Elsevier, vol. 26(4), pages 413-429.
    4. Langniss, Ole & Praetorius, Barbara, 2006. "How much market do market-based instruments create? An analysis for the case of "white" certificates," Energy Policy, Elsevier, vol. 34(2), pages 200-211, January.
    5. Peter C. Mayer, 1995. "Electricity Conservation: Consumer Rationality Versus Prospect Theory," Contemporary Economic Policy, Western Economic Association International, vol. 13(2), pages 109-118, April.
    6. Heutel, Garth, 2019. "Prospect theory and energy efficiency," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 236-254.
    7. Hall, Darwin C., 1998. "Albedo and vegetation demand-side management options for warm climates," Ecological Economics, Elsevier, vol. 24(1), pages 31-45, January.

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