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The Role of Uncertainty in Shaping Individual Preferences for Residential Energy Renovation Decisions

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  • Salome Bakaloglou
  • Fateh Belaid

Abstract

This article examines a crucial question that has been raised in recent years in both policy and economic literature: the role of uncertainty as a barrier to energy retrofit decisions. We develop a discrete choice experiment to elicit preferences for energy renovation measures. This methodologically innovative experiment design includes two insurance schemes covering potential sources of uncertainty as attributes of the energy retrofit alternatives. We use a mixed logit model to investigate the nature of systematic heterogeneity in household preferences for attributes of energy retrofit solutions. The article shows that uncertainties related to future energy pricing and retrofit quality are negatively perceived during energy-renova-tion decision making. This impact varies according to household characteristics such as risk aversion and perceptions of the economic context. The results suggest that public policies should support and accompany the development of insurance schemes to increase energy renovation rates.

Suggested Citation

  • Salome Bakaloglou & Fateh Belaid, 2022. "The Role of Uncertainty in Shaping Individual Preferences for Residential Energy Renovation Decisions," The Energy Journal, , vol. 43(4), pages 127-158, May.
    • Handle: RePEc:sae:enejou:v:43:y:2022:i:4:p:127-158
    DOI: 10.5547/01956574.43.4.sbak
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    References listed on IDEAS

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    1. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    2. Meredith Fowlie & Michael Greenstone & Catherine Wolfram, 2015. "Are the Non-monetary Costs of Energy Efficiency Investments Large? Understanding Low Take-Up of a Free Energy Efficiency Program," American Economic Review, American Economic Association, vol. 105(5), pages 201-204, May.
    3. Kenneth Gillingham & David Rapson & Gernot Wagner, 2016. "The Rebound Effect and Energy Efficiency Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(1), pages 68-88.
    4. Belaïd, Fateh & Roubaud, David & Galariotis, Emilios, 2019. "Features of residential energy consumption: Evidence from France using an innovative multilevel modelling approach," Energy Policy, Elsevier, vol. 125(C), pages 277-285.
    5. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, December.
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    Cited by:

    1. Belaïd, Fateh & Flambard, Véronique, 2024. "Ecological-behavioral economics: Impact of information on energy-renovation decision through third-party investing," Ecological Economics, Elsevier, vol. 221(C).
    2. Belaïd, Fateh & Mikayilov, Jeyhun I., 2024. "Closing the Efficiency Gap: Insights into curbing the direct rebound effect of residential electricity consumption in Saudi Arabia," Energy Economics, Elsevier, vol. 135(C).

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