Behavioral Responses of Green Builders to Discontinuous Certification Schemes

Abstract

I study behavioral responses to the green building certification system by the Leadership in Energy and Environmental Design program (LEED). LEED provides four different certification levels (‘Certified’, ‘Silver’, ‘Gold’, and ‘Platinum’) that are all defined by a threshold. Using micro data on LEED-certified buildings, I document intense bunching of buildings at or slightly above the different cutoffs. This finding is robust to different specifications, observed for different versions of LEED as well as for a comparable building certification system from the UK (the Building Research Establishment Environmental Assessment Method). Using the methods from the public finance literature, which studies bunching responses to ‘kinks’ and ‘notches’ in tax systems (e.g., Chetty et al., 2011; Kleven and Waseem, 2013), I quantify the bunching mass at the threshold. Using cross-sectional variation in bunching across different states of the US, I find a significant negative relationship between the bunching estimators and energy prices.

Keywords: Labels, Green Buildings, Energy Efficiency, Notches, Bunching

JEL Classification: H23, Q48, D62