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Measuring the Welfare Effects of Residential Energy Efficiency Programs

97 Pages Posted: 8 May 2017  

Hunt Allcott

New York University (NYU)

Michael Greenstone

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 2017

Abstract

This paper sets out a framework to evaluate the welfare impacts of residential energy efficiency programs in the presence of imperfect information, behavioral biases, and externalities, then estimates key parameters using a 100,000-household field experiment. Several results run counter to conventional wisdom: we find no evidence of informational or behavioral failures thought to reduce program participation, there are large unobserved benefits and costs that traditional evaluations miss, and realized energy savings are only 58 percent of predictions. In the context of the model, the two programs we study reduce social welfare by $0.18 per subsidy dollar spent, both because subsidies are not well-calibrated to estimated externality damages and because of self-selection induced by subsidies that attract households whose participation generates low social value. However, the model predicts that perfectly calibrated subsidies would increase welfare by $2.53 per subsidy dollar, revealing the potential of energy efficiency programs.

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Suggested Citation

Allcott, Hunt and Greenstone, Michael, Measuring the Welfare Effects of Residential Energy Efficiency Programs (May 2017). NBER Working Paper No. w23386. Available at SSRN: https://ssrn.com/abstract=2964682

Hunt Allcott (Contact Author)

New York University (NYU) ( email )

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Michael Greenstone

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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