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Willingness-to-Pay for Energy Conservation and Free-Ridership on Subsidization – Evidence from Germany

  • Peter Grösche

    ()

  • Colin Vance

Understanding the determinants of home-efficiency improvements is significant to a range of energy policy issues, including the reduction of fossil fuel use and environmental protection.This paper analyzes retrofit choices by assembling a unique data set merging a nationwide household survey from Germany with regional data on wages and construction costs. To explore the influence of both heterogeneous preferences and correlation among the utility of alternatives, conditional-, random parameters-, and error components logit models are estimated that parameterize the influence of costs, energy savings,and household-level socioeconomic attributes on the likelihood of undertaking one of 16 renovation options.We use the model coefficients to derive household-specific marginal willingness-to-pay estimates, and with these assess the extent to which free-ridership may undermine the effectiveness of recently implemented programs that subsidize the costs of retrofits.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0058.

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Length: 31 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:rwi:repape:0058
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  1. Train, Kenneth E., 1994. "Estimation of net savings from energy-conservation programs," Energy, Elsevier, vol. 19(4), pages 423-441.
  2. Silvia Banfi & Mehdi Farsi & Massimo Filippini & Martin Jakob, 2005. "Willingness to Pay for Energy-Saving Measures in Residential Buildings," CEPE Working paper series 05-41, CEPE Center for Energy Policy and Economics, ETH Zurich.
  3. Yannis M. Ioannides, 1999. "Residential Neighborhood Effects," Discussion Papers Series, Department of Economics, Tufts University 9912, Department of Economics, Tufts University.
  4. Joskow, P.L. & Marron, D.B., 1991. "What does a Negawatt Really Cost?," Working papers 596, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Brownstone, David & Train, Kenneth, 1998. "Forecasting new product penetration with flexible substitution patterns," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 109-129, November.
  6. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
  7. Quigley, John M & Rubinfeld, Daniel L, 1989. "Unobservables in Consumer Choice: Residential Energy and the Demand for Comfort," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 416-25, August.
  8. Gilbert E. Metcalf & Kevin A. Hassett, 1999. "Measuring The Energy Savings From Home Improvement Investments: Evidence From Monthly Billing Data," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 516-528, August.
  9. David A. Hensher & Stewart Jones & William H. Greene, 2007. "An Error Component Logit Analysis of Corporate Bankruptcy and Insolvency Risk in Australia," The Economic Record, The Economic Society of Australia, vol. 83(260), pages 86-103, 03.
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