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Measuring the Welfare Effects of Residential Energy Efficiency Programs with Self-Selection into Program Participation

93 Pages Posted: 4 Apr 2017 Last revised: 19 Jul 2017

Hunt Allcott

New York University (NYU)

Michael Greenstone

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: July 18, 2017

Abstract

We introduce a framework to evaluate the welfare effects of residential energy efficiency programs and estimate key parameters using a 100,000-household field experiment. Results generally contradict conventional wisdom: there is no evidence of informational or behavioral market failures, efficiency investments entail large non-monetary costs and benefits, and realized energy savings are just 58% of engineering predictions. The programs we study reduce social welfare by $0.18 per subsidy dollar, because investment subsidies are poorly targeted to externality damages and marginal program participants are unlikely to make externality-reducing investments. Such self-selection may undermine socially desirable program expansion in this and other domains.

Keywords: energy efficiency, program evaluation, randomized control trials, welfare analysis

JEL Classification: D12, L94, Q41, Q48

Suggested Citation

Allcott, Hunt and Greenstone, Michael, Measuring the Welfare Effects of Residential Energy Efficiency Programs with Self-Selection into Program Participation (July 18, 2017). Becker Friedman Institute for Research in Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=2945603 or http://dx.doi.org/10.2139/ssrn.2945603

Hunt Allcott

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Michael Greenstone (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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