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Household Discount Rates Revisited

Abstract:
Energy policy analysts (Hausman [1979], Hartman [1984], Houston [1983], Hutton [1980], and Olsen [1984]) increasingly rely on some notion of life-cycle costing for predicting how consumers will choose among alternative energy-using durable-good investments. These techniques have been important for understanding and analyzing the household purchase of new, relatively-untested appliance technologies (such as solar water heaters and more efficient refrigerators), new energy sources (such as solar photovoltaics), and capital-intensive conservation investments (such as increased home insulation, storm windows, and water heat wraps). In all of these cases, consumers face options in which a higher capital cost will purchase lower operating costs over the life of the particular pieces of equipment. We assume consumers evaluate these energy-using durables as they would any other investment. They compare and discount, over the life of the investments, the costs and financial benefits of alternatives and choose the option(s) offering the largest expected benefit.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, Q40: Energy: General, Q20: Renewable Resources and Conservation: General, Q35: Hydrocarbon Resources, Q38: Nonrenewable Resources and Conservation: Government Policy, Q54: Climate; Natural Disasters and Their Management; Global Warming

Keywords: Household discount rates, Weatherization investment, Energy conservation

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No1-9

Published in Volume 7, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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