IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach

  • Tsvetan Tsvetanov


    (University of Connecticut)

  • Kathleen Segerson


    (University of Connecticut)

Registered author(s):

    The economic models that prescribe Pigovian taxation as the first-best means of reducing energy-related externalities and argue that taxes are superior to energy efficiency standards are typically based on the neoclassical model of rational consumer choice. Yet, observed consumer behavior with regards to energy use and the purchase of energy-using durable goods is generally thought to be far from efficient, giving rise to the concept of the “energy-efficiency gap.” In this paper, we present a welfare analysis of Pigovian taxes and energy efficiency standards that is based on an alternative, time-consistent behavioral model. We adapt the model of temptation and self-control of Gul and Pesendorfer (2001, 2004) to the context of the purchase of energyusing durable goods. Our results suggest that (i) temptation or self-control might be a contributing factor in explaining the energy-efficiency gap, (ii) standards might be used as a commitment device to address inefficiencies in consumer choice that stem from temptation, and (iii) in the presence of temptation, a policy that combines standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Working Papers with number 07.

    in new window

    Length: 44 pages
    Date of creation: Dec 2011
    Date of revision:
    Handle: RePEc:zwi:wpaper:07
    Contact details of provider: Postal: 1376 Storrs Road, U-21, Storrs, Connecticut 06269-4021
    Phone: 860-486-2836
    Fax: 860-486-1932
    Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Kamhon Kan, 2006. "Cigarette smoking and self-control," IEAS Working Paper : academic research 06-A004, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    2. Parry, Ian W.H. & Evans, David & Oates, Wallace E., 2014. "Are energy efficiency standards justified?," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 104-125.
    3. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory And Evidence," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1261-1303, November.
    4. Kenneth A. Small & Kurt Van Dender, 2007. "Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 25-52.
    5. Kevin X.D. Huang & Zheng Liu & John Q. Zhu, 2007. "Temptation and Self-Control: Some Evidence and Applications," Vanderbilt University Department of Economics Working Papers 0711, Vanderbilt University Department of Economics.
    6. 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.
    7. Garth Heutel, 2011. "Optimal Policy Instruments for Externality-Producing Durable Goods Under Time Inconsistency," NBER Working Papers 17083, National Bureau of Economic Research, Inc.
    8. Jesse M. Shapiro, 2003. "Is there a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle," Microeconomics 0304005, EconWPA, revised 21 Apr 2003.
    9. Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009. "Energy Efficiency Economics and Policy," NBER Working Papers 15031, National Bureau of Economic Research, Inc.
    10. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    11. Lucas W. Davis, 2008. "Durable goods and residential demand for energy and water: evidence from a field trial," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 530-546.
    12. Jeremy Tobacman & David Laibson, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Economics Series Working Papers 341, University of Oxford, Department of Economics.
    13. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    14. Walter McManus, 2007. "The Link Between Gasoline Prices and Vehicle Sales," Business Economics, Palgrave Macmillan, vol. 42(1), pages 53-60, January.
    15. Klaus Wertenbroch, 1998. "Consumption Self-Control by Rationing Purchase Quantities of Virtue and Vice," Marketing Science, INFORMS, vol. 17(4), pages 317-337.
    16. Ying Zhang & Szu-chi Huang & Susan M. Broniarczyk, 2010. "Counteractive Construal in Consumer Goal Pursuit," Journal of Consumer Research, University of Chicago Press, vol. 37(1), pages 129-142, 06.
    17. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:zwi:wpaper:07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.