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Minimum Energy Efficiency Standards for Appliances: Old and New Economic Rationales

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Abstract:
We revisit Hausman and Joskow (1982)'s economic rationales for appliance minimum energy efficiency standards. In addition to the four market failures they argued could justify appliance standards - energy prices below marginal social cost, consumers underestimating energy prices, consumer discount rates above social discount rates, and principal-agent problems - we discuss two additional market failures that are relevant and potentially economically important in this context: market power and innovation market failures. We highlight puzzles uncovered by recent empirical results, and suggest directions future research should take to better understand the normative implications of appliance standards.
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Keywords: Appliances, Minimum Energy Efficiency Standards, Energy Efficiency Policy

http://dx.doi.org/10.5547/2160-5890.5.2.shou

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Published in Volume 5, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.