Energy Efficiency Policy with Price-Quality Discrimination

28 Pages Posted: 24 Apr 2015

See all articles by Marie-Laure Nauleau

Marie-Laure Nauleau

CIRED, International Research Center on Environment & Development, France

Louis-Gaëtan Giraudet

CIRED

Philippe Quirion

CIRED, International Research Center on Environment & Development, France; CNRS/EHESS

Date Written: April 22, 2015

Abstract

We compare a range of energy efficiency policies in a durable good market subject to both energy-use externalities and price-quality discrimination by a monopolist. We find that the social optimum can be achieved with differentiated subsidies. With ad valorem subsidies, the subsidization of the high-end good leads the monopolist to cut the quality of the low-end good. The rates should always be decreasing in energy efficiency. With per-quality subsidies, there is no such interference and the rates can be increasing if the externality is large enough relative to the market share of low-type consumers. Stand-alone instruments only achieve second-best outcomes. A minimum quality standard may be set at the high-end of the product line if consumers are not too dissimilar, otherwise it should only target the low-end good. An energy tax should be set above the marginal external cost. Likewise, a uniform ad valorem subsidy should be set above the subsidy that would be needed to specifically internalize energy-use externalities. Lastly, if, as is often observed in practice, only the high-end good is to be incentivized, a per-quality schedule should be preferred over an ad valorem one. An ad valorem tax on the high-end good may even be preferred over an ad valorem subsidy if the externality is small enough and low-end consumers dominate the market.

Keywords: Energy Efficiency, Price-Quality Discrimination

JEL Classification: Q4, Q41, Q48

Suggested Citation

Nauleau, Marie-Laure and Giraudet, Louis-Gaëtan and Quirion, Philippe, Energy Efficiency Policy with Price-Quality Discrimination (April 22, 2015). FEEM Working Paper No. 033.2015, Available at SSRN: https://ssrn.com/abstract=2597608 or http://dx.doi.org/10.2139/ssrn.2597608

Marie-Laure Nauleau

CIRED, International Research Center on Environment & Development, France ( email )

Campus du Jardin Tropical
45 bis avenue de la Belle Gabrielle
F94736 Nogent sur Marne Cedex
France

Louis-Gaëtan Giraudet

CIRED ( email )

France

Philippe Quirion (Contact Author)

CIRED, International Research Center on Environment & Development, France ( email )

Campus du Jardin Tropical
45 bis avenue de la Belle Gabrielle
F94736 Nogent sur Marne Cedex
France
+33 1 43 94 73 95 (Phone)
+33 1 43 94 73 70 (Fax)

CNRS/EHESS

54, boulevard Raspail
Paris, 75006
France

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