Not so Myopic Consumers - Evidence on Capitalization of Energy Technologies in a Housing Market

34 Pages Posted: 9 Oct 2014

See all articles by Oskari Harjunen

Oskari Harjunen

VATT Institute for Economic Research

Matti Liski

Aalto University - Department of Economics

Date Written: September 30, 2014

Abstract

Policies affecting the cost of energy use provide correct incentives for technology choices only if there is a market reward for energy efficiency. We provide clean evidence for market efficiency by considering how heating technologies capitalize into house values using detailed Finnish register data on technologies in houses, transaction prices and socio-economic variables. We exploit variation in technologies that houses are locked into at construction time to identify the stand-alone value of having a cost-saving technology in the house. For the two main technologies, electric and district heating, the estimated price discount is 5-6% of the house value for electric heating, coming very close to the capitalized value of the cost differential obtained from external data on energy contract prices. Technologies act as “labels” with clear market valuation - the results support the idea that transparent energy-efficiency classification of houses capitalize into house prices.

Keywords: energy efficiency, energy paradox, discounting

JEL Classification: D120, H230, Q420, Q500

Suggested Citation

Harjunen, Oskari and Liski, Matti, Not so Myopic Consumers - Evidence on Capitalization of Energy Technologies in a Housing Market (September 30, 2014). CESifo Working Paper Series No. 4989, Available at SSRN: https://ssrn.com/abstract=2507740 or http://dx.doi.org/10.2139/ssrn.2507740

Oskari Harjunen

VATT Institute for Economic Research ( email )

Matti Liski (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland
+358-9-43138384 (Phone)
+358-9-43138735 (Fax)

HOME PAGE: http://www.hkkk.fi/~liski

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
222
Abstract Views
1,586
Rank
211,572
PlumX Metrics