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


  • Kevin A. Hassett
  • Gilbert E. Metcalf



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 (9.7%) is almost identical 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. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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  • Kevin A. Hassett & Gilbert E. Metcalf, 1997. "Measuring the Energy Savings from Home Improvements Investments: Evidence from Monthly Billing Data," Discussion Papers Series, Department of Economics, Tufts University 9701, Department of Economics, Tufts University.
  • Handle: RePEc:tuf:tuftec:9701

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    References listed on IDEAS

    1. 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.
    2. Hirst, Eric, 1986. "Actual energy savings after retrofit: Electrically heated homes in the Pacific Northwest," Energy, Elsevier, vol. 11(3), pages 299-308.
    3. 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.
    4. 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.
    5. 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 591-598, November.
    6. 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.
    7. 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.
    8. 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.
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General


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