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The Energy Efficiency Gap in the Rental Housing Market: It Takes Both Sides to Build a Bridge

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Abstract:
We revisit the issue of the energy efficiency (EE) gap by explicitly acknowledging the two-sided nature of the rental housing market and two-sided asymmetries of information between tenants and landlords. Employing a theoretical matching model, we show that Energy Performance Certificates (EPCs) that signal a dwelling’s energy performance induce optimal EE investments by landlords only if tenants pay their energy expenditures in full. When landlords pay part of the energy expenditures, they seek tenants who will conserve energy. Our model shows that asymmetry of information over tenant characteristics results in suboptimally low investments in EE. This may even render EPCs counterproductive. As a remedy, we show that tenant-side signaling needs to be rolled out jointly with EPCs and may even be sufficient when contracts include energy expenditures. Data from an original survey provides support for these insights and suggests that information on the tenants’ side contributes to more EE investment.

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Keywords: Energy efficiency gap, Split incentives, Rental housing market, Matching, Signaling, Energy performance certificates

DOI: 10.5547/01956574.44.1.xlam

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Published in Volume 44, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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