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Split Incentives in Residential Energy Consumption

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  • Kenneth Gillingham
  • Matthew Harding
  • David Rapson

Abstract

We explore two split incentive issues between owners and occupants of residential dwellings: heating or cooling incentives are suboptimal when the occupant does not pay for energy use, and insulation incentives are suboptimal when the occupant cannot perfectly observe the owner’s insulation choice. We empirically quantify the effect of these two market failures and how they affect behavior in California. We find that those who pay are 16 percent more likely to change the heating setting at night and owner-occupied dwellings are 20 percent more likely to be insulated in the attic or ceiling. However, in contrast to common conception, we find that only small overall energy savings may be possible from policy interventions aimed at correcting the split incentive issues.

Suggested Citation

  • Kenneth Gillingham & Matthew Harding & David Rapson, 2012. "Split Incentives in Residential Energy Consumption," The Energy Journal, , vol. 33(2), pages 37-62, April.
    • Handle: RePEc:sae:enejou:v:33:y:2012:i:2:p:37-62
    DOI: 10.5547/01956574.33.2.3
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    References listed on IDEAS

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    1. Sanford J. Grossman & Oliver D. Hart, 1982. "Corporate Financial Structure and Managerial Incentives," NBER Chapters, in: The Economics of Information and Uncertainty, pages 107-140, National Bureau of Economic Research, Inc.
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    1. Best, Rohan & Chareunsy, Andrea & Nazifi, Fatemeh, 2025. "Persistent energy poverty for renters motivates policy reform," Energy Economics, Elsevier, vol. 147(C).
    2. Singhal, Puja & Sommer, Stephan & Kaestner, Kathrin & Pahle, Michael, 2025. "Split-incentives in energy efficiency investments? Evidence from rental housing," Resource and Energy Economics, Elsevier, vol. 82(C).
    3. Francois Cohen & Matthieu Glachant & Magnus Soderberg, 2025. "The autonomous adaptation of US homes to changing temperatures," Journal of Economic Geography, Oxford University Press, vol. 25(6), pages 917-935.
    4. Leo Reutter, 2025. "Inefficient incentives for energy saving in tenancy law and policy options to remedy the landlord-tenant dilemma," European Journal of Law and Economics, Springer, vol. 59(1), pages 179-218, February.
    5. Bishop, Kelly C. & Kiribrahim-Sarikaya, Ozgen, 2024. "Energy-efficient investments in housing," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    6. Jack, B. Kelsey & Jayachandran, Seema & Malagutti, Flavio & Rao, Sarojini, 2024. "Environmental externalities and free-riding in the household," Journal of Development Economics, Elsevier, vol. 170(C).
    7. Jacobsen, Grant D., 2025. "Who adopts and deploys advanced home energy technologies?," Energy Economics, Elsevier, vol. 145(C).

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