Ruhr Economic Papers

Ruhr Economic Papers #99

Identifying Free-Riding in Energy-Conservation Programs Using Revealed Preference Data

by Peter Grösche, Christoph M. Schmidt and Colin Vance

RWI, 03/2009, 23 S./p., 8 Euro, ISBN 978-3-86788-110-4

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Abstract

Identifying the incidence of free-ridership is significant to a range of issues relevant to program evaluation, including the calculation of net program benefits and more general assessments of political acceptability. Estimates of free-ridership in the area of energy policy frequently rely on ex-post surveys that ask program participants whether they would have behaved differently in the absence of program support. The present paper proposes an ex-ante approach to the calculation of the free-rider share using revealed preference data on home renovations from Germany's residential sector. We employ a discrete-choice model to simulate the effect of grants on renovation choices, the output from which is used to assess the extent of free-ridership under a contemporary subsidy program. Aside from its simplicity, a key advantage of the approach is that it bestows policymakers with an estimate of free-ridership prior to program implementation.

JEL-Classification: C25, D12, Q4

Keywords: Energy efficiency; residential sector; random utility model; discrete choice simulation

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