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Measuring the Energy Savings from Home Improvement Investments: Evidence from Monthly Billing Data

  • Gilbert E. Metcalf
  • Kevin A. Hassett

An important factor driving energy policy over the past two decades has been the Energy Paradox,' the perception that consumers apply unreasonably high hurdle rates to energy saving investments. We explore one possible explanation for this apparent puzzle: that realized returns fall short of the returns promised by engineers and product manufacturers. Using a unique data set, we find that the realized return to attic insulation is statistically significant, but the median estimate (12.3 percent) is close to a discount rate for this investment implied by a CAPM analysis. We conclude that the case for the Energy Paradox is weaker than has previously been believed.

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File URL: http://www.nber.org/papers/w6074.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6074.

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Date of creation: Jun 1997
Date of revision:
Publication status: published as Review of Economics and Statistics, Vol. 81, no. 3 (1999): 516-528.
Handle: RePEc:nbr:nberwo:6074
Note: PE EEE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. Shin, Jeong-Shik, 1985. "Perception of Price When Price Information Is Costly: Evidence from Residential Electricity Demand," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 591-98, November.
  2. Frederick D. Sebold & Eric W. Fox, 1985. "Realized Savings from Residential Conservation Activity," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 73-88.
  3. E. Raphael Branch, 1993. "Short Run Income Elasticity of Demand for Residential Electricity Using Consumer Expenditure Survey Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 111-122.
  4. Eric Hirst & Richard Goeltz, 1984. "The Economics of Utility Residential Energy Conservation Programs: A Pacific Northwest Example," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 159-170.
  5. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
  6. Hartman, Raymond S. & Doane, Michael J., 1987. "Taking the con out of conservation program evaluation," Resources and Energy, Elsevier, vol. 9(2), pages 187-207, August.
  7. Hirst, Eric, 1986. "Actual energy savings after retrofit: Electrically heated homes in the Pacific Northwest," Energy, Elsevier, vol. 11(3), pages 299-308.
  8. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
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