Individual Time Preferences and Energy Efficiency

Richard G. Newell, Juha V. Siikamaki

NBER Working Paper No. 20969
Issued in February 2015
NBER Program(s):Environment and Energy Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

We examine the role of individual discount rates in energy efficiency decisions using evidence from an extensive survey of U.S. homeowners to elicit preferences for energy efficiency and cash flows over time. We find considerable heterogeneity in individual discount rates. We also find that individual time preferences systematically influence willingness to invest in energy efficiency, as measured through product choices, required payback periods, and energy efficiency tax credit claims. Individual discount rate heterogeneity is in turn significantly related to characteristics of the individual and their household, including their financial situation. Individuals with less education, larger households, low income, and low credit scores had systematically higher discount rates, as did black, non-Hispanic respondents. Our findings highlight the importance of individual discount rates to understanding energy efficiency investments, the energy-efficiency gap, and policy evaluation.

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Document Object Identifier (DOI): 10.3386/w20969

Published: Richard G. Newell & Juha Siikamäki, 2015. "Individual Time Preferences and Energy Efficiency," American Economic Review, American Economic Association, vol. 105(5), pages 196-200, May. citation courtesy of

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