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Willingness to pay and price elasticities of demand for energy-efficient appliances: Combining the hedonic approach and demand systems

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  • Galarraga, Ibon
  • González-Eguino, Mikel
  • Markandya, Anil

Abstract

This article proposes a combined approach for estimating willingness to pay for the attributes represented by energy efficiency labels and providing reliable price elasticities of demand (own and cross) for close substitutes (e.g. those with low energy efficiency and those with higher energy efficiency). This is done by using the results of the hedonic approach together with the Quantity Based Demand System (QBDS) model. The elasticity results obtained with the latter are then compared with those simulated using the Linear Almost Ideal Demand System (LA/AIDS). The methodology is applied to the dishwasher market in Spain: it is found that 15.6% of the final price is actually paid for the energy efficiency attribute. This accounts for about €80 of the average market price. The elasticity results confirm that energy efficient appliances are more price elastic than regular ones.

Suggested Citation

  • Galarraga, Ibon & González-Eguino, Mikel & Markandya, Anil, 2011. "Willingness to pay and price elasticities of demand for energy-efficient appliances: Combining the hedonic approach and demand systems," Energy Economics, Elsevier, vol. 33(S1), pages 66-74.
    • Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s66-s74
    DOI: 10.1016/j.eneco.2011.07.028
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    More about this item

    Keywords

    Demand systems; Hedonic method; Energy efficiency labelling; Household appliances (dishwashers);
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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