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


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


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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    Cited by:

    1. Cohen, François & Glachant, Matthieu & Söderberg, Magnus, 2017. "Consumer myopia, imperfect competition and the energy efficiency gap: Evidence from the UK refrigerator market," European Economic Review, Elsevier, vol. 93(C), pages 1-23.
    2. Galarraga, Ibon & Abadie, Luis M. & Ansuategi, Alberto, 2013. "Efficiency, effectiveness and implementation feasibility of energy efficiency rebates: The “Renove” plan in Spain," Energy Economics, Elsevier, vol. 40(S1), pages 98-107.
    3. Kimitaka Nishitani & Munehiko Itoh, 2014. "Product Innovation in Response to Environmental Standards and Competitive Advantage: A Hedonic Analysis of Refrigerators in the Japanese Retail Market," Discussion Paper Series DP2014-30, Research Institute for Economics & Business Administration, Kobe University.
    4. Galarraga, Ibon & Ramos, Ana & Lucas, Josu & Labandeira, Xavier, 2014. "The price of energy efficiency in the Spanish car market," Transport Policy, Elsevier, vol. 36(C), pages 272-282.
    5. Weinrich, Ramona & Spiller, Achim, 2016. "Can a Multi-Level Label do Better than a Binary Label for Animal Welfare? A PLS-Analysis of Consumer Satisfaction," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 19(3).
    6. Lopez, Ramon E. & Yoon, Sang Won, 2013. "Sustainable Economic Growth: Structural Transformation with Consumption Flexibility," Working Papers 142561, University of Maryland, Department of Agricultural and Resource Economics.
    7. Ana Ramos & Xavier Labandeira & Andreas Löschel, 2016. "Pro-environmental Households and Energy Efficiency in Spain," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 367-393, February.
    8. Arawomo, Damilola F. & Osigwe, Augustine C., 2016. "Nexus of fuel consumption, car features and car prices: Evidence from major institutions in Ibadan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1220-1228.
    9. Ramos, A. & Gago, A. & Labandeira, X. & Linares, P., 2015. "The role of information for energy efficiency in the residential sector," Energy Economics, Elsevier, vol. 52(S1), pages 17-29.
    10. Kusaka, Wakana & Kojima, Michikazu & Watanabe, Mariko, 2012. "Environmental consciousness, economic gain and consumer choice of energy efficient appliances in Thailand, China and India," IDE Discussion Papers 345, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Aydin, Erdal, 2016. "Energy conservation in the residential sector : The role of policy and market forces," Other publications TiSEM b9cedba8-1310-4097-90fb-b, Tilburg University, School of Economics and Management.
    12. Galarraga, Ibon & Abadie, Luis M. & Kallbekken, Steffen, 2016. "Designing incentive schemes for promoting energy-efficient appliances: A new methodology and a case study for Spain," Energy Policy, Elsevier, vol. 90(C), pages 24-36.
    13. de Ayala, Amaia & Galarraga, Ibon & Spadaro, Joseph V., 2016. "The price of energy efficiency in the Spanish housing market," Energy Policy, Elsevier, vol. 94(C), pages 16-24.
    14. López, Ramón E. & Yoon, Sang W., 2014. "Environmental Sustainability with a Pollution Tax," Working Papers 166244, University of Maryland, Department of Agricultural and Resource Economics.
    15. Ibon Galarraga & Josu Lucas, 2013. "Economic Evaluation of Energy Efficiency Labelling in Domestic Appliances: the Spanish Market," Working Papers 2013-08, BC3.
    16. repec:eee:appene:v:206:y:2017:i:c:p:222-239 is not listed on IDEAS
    17. Anil Markandya & Xavier Labandeira & Ana Ramos, 2013. "Policy Instruments to Foster Energy Efficiency," Working Papers 01-2014, Economics for Energy.
    18. Park, Ju Young, 2017. "Is there a price premium for energy efficiency labels? Evidence from the Introduction of a Label in Korea," Energy Economics, Elsevier, vol. 62(C), pages 240-247.
    19. Panzone, Luca A., 2013. "Saving money vs investing money: Do energy ratings influence consumer demand for energy efficient goods?," Energy Economics, Elsevier, vol. 38(C), pages 51-63.
    20. Ana Ramos & Xavier Labandeira & Andreas Lšschel, 2015. "Pro-Environmental Households and Energy Efficiency in Spain," Working Papers 01-2015, Economics for Energy.
    21. Ibon Galarraga & Luis M. Abadie, 2014. "The use of “Bonus-Malus†schemes for promoting energy-efficient household appliances: a case study for Spain," Working Papers 2014-06, BC3.

    More about this item


    Demand systems; Hedonic method; Energy efficiency labelling; Household appliances (dishwashers);

    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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