Paternalism and New Durable-Goods Energy Efficiency Standards: Consumers Ain't Misbehavin’

32 Pages Posted: 28 Jun 2016

See all articles by David Raboy

David Raboy

NOVA Community College ; Walter Reed National Military Medical Center/Bolling Airforce Base--Central Texas College

Syed Abul Basher

East West University

Date Written: June 26, 2016

Abstract

This paper extends the literature on consumer decision-making and energy efficiency through recourse to insights from behavioral economics and neuroeconomics. This approach is motivated by the U.S. Department of Energy’s (DOE) new regulations mandating more stringent energy-efficiency standards for consumer durables, stated to be nested in behavioral economics. Consumers, afflicted by intertemporal internalities, are said to undervalue energy savings from durables “investments,” causing suboptimal energy-efficient-appliance purchasing and, absent government intervention, the irrational foregoing of private returns. This paper critically examines DOE’s regulatory actions. We first analyze consumer heuristic-formation and decision-making regarding durables, inevitably leading to the core issue of decision-making under risk versus ambiguity -- informed by research on the neural correlates to this dichotomy. We then conduct an empirical analysis of retail residential energy prices and determine that these data are unequivocally ambiguous. DOE’s assertion that paternalism will produce private returns drives our subsequent step-by-step deconstruction of DOE’s empirical methodology, yielding the conclusion that it artificially purges volatility and nonstationarity from energy prices. We find no evidence that the DOE regulations will produce private returns to consumers, or that consumer behavior is irrational.

Keywords: energy-efficiency, regulation, behavioral economics, consumer choice, neuroeconomics

JEL Classification: C1, D81, D87, K2, Q48

Suggested Citation

Raboy, David and Basher, Syed Abul, Paternalism and New Durable-Goods Energy Efficiency Standards: Consumers Ain't Misbehavin’ (June 26, 2016). Available at SSRN: https://ssrn.com/abstract=2800806 or http://dx.doi.org/10.2139/ssrn.2800806

David Raboy (Contact Author)

NOVA Community College ( email )

Sterling, VA 20164-8699
United States

Walter Reed National Military Medical Center/Bolling Airforce Base--Central Texas College ( email )

P.O. Box 8558
Washington, DC 20032
United States

Syed Abul Basher

East West University ( email )

Aftabnagar Main Road
Plot No. A-2
Dhaka, 1219
Bangladesh

HOME PAGE: http://https://sites.google.com/view/syedbasher

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