Heterogeneous preferences and investments in energy saving measures

Abstract

We investigate whether risk, time, environmental, and social preferences affect single family homeowners' investments in energy efficient renovations and energy quality of their house using established experimental measures and questionnaires. We find that homeowners who report to be more risk taking are more likely to have renovated their house. Pro-environmental and futureoriented renovators, i.e. renovators with lower discount factors, live in homes with higher energy efficiency. Controlling for the energy efficiency of houses, we further find that energy consumption as measured by heating and energy costs are lower for future-oriented and proenvironmental individuals. Social preferences measured in a dictator and a generosity game play a mixed role for investments in energy efficiency and energy consumption.

Do Household Time, Risk, and Social Preferences Affect Home Energy Retrofit Decisions in Korea?

“…First, we investigate the joint effects of the time, risk, and social preference characteristics based on the modified intuition of the EE investment model of Allcott and Greenstone [12]. Except Fischbacher et al [21], most studies mentioned in this section lack a theoretical explanation or focus on only one or two of the three preference characteristics, consequently yielding unreliable results that the effects of the preference characteristics may be exaggerated. Second, we design our survey by borrowing the methods in the previous studies regarding behavioral and experimental economics and thus, try to provide more reliable results.…”

“…Meanwhile, in their approach [12], many behavioral factors which were supposed to influence the EE gap were not considered seriously, and merely summarized into imperfect information and inattention. The ignored behavioral factors are highly related to an agent's time, risk, and social preference characteristics, referring [15][16][17][19][20][21][22]. In this paper, starting from the perspective of the EE investment model shown in Equation (1), we hypothesize how time, risk, and social preference characteristics other than imperfect information and inattention affect home energy retrofit decisions.…”

“…d/γ determines the balance of cost/benefit transactions occurring at different periods in the intertemporal choice. Implicit discount rates of EE investments are remarkably higher than money market rates, and higher implicit discount rates cause the EE gap [10,15,21]. DEFRA [19] pointed out present bias as one of the main factors increasing the implicit discount rate of EE investments.…”

“…By eliciting people's self-reported purchase history of EE technologies and their risk aversion, Qiu et al [17] found that risk aversion negatively affects the likelihood of purchasing EE technologies. Fischbacher et al [21] argued that homeowners more likely to take risks in general or in financial matters are more likely to invest in a home energy retrofit. Building on these discussions, we consider that an agent's risk aversion intensifies the EE gap by decreasing γ and thus formulate the following research hypothesis: Hypothesis 2.…”

“…The purpose of this study is to investigate the impact of time, risk, and social preference characteristics on home energy retrofit decisions. Following the arguments of Qiu et al [17], Fischbacher et al [21], and Ramos et al [22], we begin with the linear model of utility function y * :…”