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The Role of Uncertainty in Shaping Individual Preferences for Residential Energy Renovation Decisions

This article examines a crucial question that has been raised in recent years in both policy and economic literature: the role of uncertainty as a barrier to energy retrofit decisions. We develop a discrete choice experiment to elicit preferences for energy renovation measures. This methodologically innovative experiment design includes two insurance schemes covering potential sources of uncertainty as attributes of the energy retrofit alternatives. We use a mixed logit model to investigate the nature of systematic heterogeneity in household preferences for attributes of energy retrofit solutions. The article shows that uncertainties related to future energy pricing and retrofit quality are negatively perceived during energy-renovation decision making. This impact varies according to household characteristics such as risk aversion and perceptions of the economic context. The results suggest that public policies should support and accompany the development of insurance schemes to increase energy renovation rates.

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Keywords: Stated preference method, Discrete choice experiment, Energy efficiency gap, Decision under uncertainty, Energy retrofit decision, Mixed logit model

DOI: 10.5547/01956574.43.4.sbak

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Published in Volume 43, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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