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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



How large is the Owner-Renter Divide in Energy Efficient Technology? Evidence from an OECD cross-section

Chandra Kiran B. Krishnamurthy and Bengt Kriström

Year: 2015
Volume: Volume 36
Number: Number 4
DOI: 10.5547/01956574.36.4.ckri
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Abstract:
When the agent making an investment decision is different from the one bearing the costs of the decision, the outcome (energy usage, here) is socially sub-optimal, a scenario known in the energy efficient technology case as "split incentive" effect. Using a sample of households (from a survey conducted in 2011) from 11 OECD countries, this paper investigates the magnitude of the "split incentive" effect between home occupants who are owners and those who are renters. A wide variety of energy-related "technologies" are considered: appliances, energy efficient bulbs, insulation, heat thermostat, solar panels, ground source heat pumps and wind turbines. Mean difference in patterns of access to these technologies are consistent with the "split incentives" hypothesis. Regression results suggest that, even after controlling for the sizeable differences in observed characteristics, owners are substantially more likely to have access to energy efficient appliances and to better insulation as well as to heat thermostats. For relatively immobile investments such as wind turbines and ground source heat pumps, we find no differences between owners and renters.



Incentivizing Energy Efficiency under Private Information: The Social Optimum

Franz Wirl

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.fwir
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Abstract:
This paper addresses how far public initiatives should try to eliminate the energy efficiency gap if consumers hold private information about their willingness to pay for efficiency. The major finding is that even socially optimal efficiency programs should only close a fraction of the gap. This conclusion has to be strengthened if the external costs of energy were internalized, because an intervention is then only justified for low costs of public funds and very large payback gaps. Furthermore, the realistic assumption of private information implies that the highest subsidies must be paid to efficient types, which turns incentives based on perfect information upside down.



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.



Are Energy Executives Rewarded for Luck?

Lucas W. Davis and Catherine Hausman

Year: 2020
Volume: Volume 41
Number: Number 6
DOI: 10.5547/01956574.41.6.ldav
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Abstract:
In this paper, we examine executive compensation data from 78 major U.S. oil and gas companies over a 24-year period. Perhaps in no other industry are the fortunes of so many executives so dependent on a single global commodity price. We find that a 10% increase in oil prices is associated with a 2% increase in executive compensation. This oil price effect holds for both CEOs and non-CEOs and separately for several different individual components of compensation, including bonuses. We find that the oil price effect is larger in companies with more insiders on the board, and asymmetric, with executive compensation rising with increasing oil prices more than it falls with decreasing oil prices. We then discuss potential mechanisms drawn from the broader existing literature on executive compensation.



Evidence of a Homeowner-Renter Gap for Electric Appliances

Lucas W. Davis

Year: 2023
Volume: Volume 44
Number: Number 4
DOI: 10.5547/01956574.44.4.ldav
View Abstract

Abstract:
This paper provides the first empirical analysis of the homeowner-renter gap for electric appliances. Using U.S. nationally representative data, the analysis shows that renters are significantly more likely than homeowners to have electric heat, electric hot water heating, an electric stove, and an electric dryer. The gap is highly statistically significant, prevalent across regions, and holds after controlling for the type, size, and age of the home, as well as for climate and household characteristics. The paper argues that this gap arises from the same split incentives that lead to the "landlord-tenant problem" and discusses the implications of the gap for an emerging set of policies aimed at reducing carbon dioxide emissions through building electrification.





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