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Split Incentives in Residential Energy Consumption

Kenneth Gillingham, Matthew Harding, and David Rapson

Year: 2012
Volume: Volume 33
Number: Number 2
DOI: 10.5547/01956574.33.2.3
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Abstract:
We explore two split incentive issues between owners and occupants of residential dwellings: heating or cooling incentives are suboptimal when the occupant does not pay for energy use, and insulation incentives are suboptimal when the occupant cannot perfectly observe the owner's insulation choice. We empirically quantify the effect of these two market failures and how they affect behavior in California. We find that those who pay are 16 percent more likely to change the heating setting at night and owner-occupied dwellings are 20 percent more likely to be insulated in the attic or ceiling. However, in contrast to common conception, we find that only small overall energy savings may be possible from policy interventions aimed at correcting the split incentive issues. Keywords: Principal-agent, Asymmetric information, CO2 emissions



Utilities Included: Split Incentives in Commercial Electricity Contracts

Katrina Jessoe, Maya Papineau, and David Rapson

Year: 2020
Volume: Volume 41
Number: Number 5
DOI: 10.5547/01956574.41.5.kjes
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Abstract:
This paper quantifies a tenant-side �split incentives� problem that exists when the largest commercial sector customers are on electricity-included property lease contracts, causing them to face a marginal electricity price of zero. We use exogenous variation in weather shocks to show that the largest firms on tenant-paid contracts use up to 14 percent less electricity in response to summer temperature fluctuations. The result is retrieved under weaker identifying assumptions than previous split incentives papers, and is robust when exposed to several opportunities to fail. The electricity reduction in response to temperature increases is likely to be a lower bound when generalized nationwide and suggests that policymakers should consider a sub-metering policy to expose the largest commercial tenants to the prevailing retail electricity price.





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