DISCOUNT RATES AND ENERGY EFFICIENCY

Empirical studies provide compelling evidence that economic agents do not adopt the complete range of energy-efficient technologies that are cost-effective under prevailing prices and market conditions. Analysts commonly attribute this anomaly to the use of high discount rates in energy-related decisions-an interpretation that is difficult to reconcile with standard models of rational choice. This paper recasts the controversy from the perspective of economic theory and finds that market failures related to asymmetric information, bounded rationality, and transaction costs are major contributors to the so-called "efficiency gap."     

Effects of Appliance Standards on Product Price and Attributes: An Hedonic Pricing Model

The tradeoffs between energy efficiency gains and product attributes as a result of the implementation of federal energy performance standards are examined. Hedonic pricing relationships are used to estimate changes in standardized marginal attribute prices for freezer volumes, food volumes, and annual energy consumption for refrigerators and refrigerator/freezers. From 1987/88 to 1993, energy performance standards significantly reduced energy consumption and at the same time, a historical decline in "quality-adjusted" real prices continued without disruption and consumers appeared to experience a welfare gain as a result of improving levels of energy efficiency.