1. High Discount Rates, Inattention, and the Energy Efficiency Gap Across Income Groups
Sébastien Houde
Assistant Professor
Department of Agricultural and Resource Economics
University of Maryland
March 29, 2016

2. The Energy Efficiency Gap
A phenomenon that refers as the too slow adoption of energy savings technologies that would benefit consumers themselves and society.

3. One Potential Cause of the Energy Efficiency Gap
Consumers defective telescopic ability to foresee future energy savings.
As if consumers where discounting steeply future energy operating costs.
Seemingly high discount rates have been the rationale for most energy efficiency/conservation policies that we are living with today.

4. The First Empirical Evidence of High Discount Rates: Hausman 1979
Data and Environment
Purchase and utilization decision for room air conditioners
1985 US households across 16 cities, August 1976-July 1977
Results
Average: 15-25%
By Income Group
$24,000 (N=6) 89%
$40,000 (N=15) 39%
$60,000 (N=16) 27%
$100,000 (N=17) 17%
$140,000 (N=8) 8.9%
$200,000 (N=3) 5.1%

5. The Consensus of the 80s

6. Recent Evidence for the US Appliance Market
Appliance category: full-size refrigerators
Data: transaction level data from large appliance retailer (N>millions)
Geography: all US
Period:
Sample: Homeowners living in single family units and that bought no more than one refrigerator in the five year sample period

7. Decision Environment: Appliance Purchasing Decision

8. The Average Consumer by Income Group
Discount Rate
80%
40%
22%
Willingness to Pay for
$30
$44
$57

9. Heterogeneity in Preferences for Energy Information

10. Income: <$50,000

11. Income: <$50,000
r=102%
WTP=$220
r=13%

12. Income: [$50,000; $100,000]
WTP=$340
r=5.6%

13. Income: >$100,000
WTP=$430
r=4.8%

14. Heterogeneity in Preferences for Energy Information
Income: <$50,000
Income [$50,000; $100,000]
Income: >$100,000
Informed (Low Discount Rate)
29%
46%
21%
Energy Star Focus
14%
20%
18%
Inattentive
57%
33%
61%

15. Take-Away
Lower income households do have higher discount rates, but they are also much more likely to be inattentive to energy information.
Subsidizing the price may not be as much important to finding ways to make energy costs more salient to these consumers.
Minimum energy efficiency standards may be justified from a distributional point of view, more than from an economic efficiency point of view.
Minimum standards protect lower income households from their own defective telescopic ability.

16. Thank you!

17. The Average Consumer by Income Group
Discount Rate
80%
40%
22%
Willingness to Pay for
$30
$44
$57
Probability to take advantage of rebates
20%
12% 5%