Ruhr Economic Papers

Ruhr Economic Papers #58

Willingness-to-Pay for Energy Conservation and Free-Ridership on Subsidization - Evidence from Germany

by Peter Grösche and Colin Vance

RWI, 08/2008, 29 S./p., 8 Euro, ISBN 978-3-86788-061-9

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Abstract

Understanding the determinants of home-efficiency improvements is significant to a range of energy policy issues, including the reduction of fossil fuel use and environmental protection. This paper analyzes retrofit choices by assembling a unique data set merging a nationwide household survey from Germany with regional data on wages and construction costs. To explore the influence of both heterogeneous preferences and correlation among the utility of alternatives, conditional-, random parameters-, and error components logit models are estimated that parameterize the influence of costs, energy savings, and household-level socioeconomic attributes on the likelihood of undertaking one of 16 renovation options. We use the model coefficients to derive household-specific marginal willingness-to-pay estimates, and with these assess the extent to which free-ridership may undermine the effectiveness of recently implemented programs that subsidize the costs of retrofits.

JEL-Classification: C25, D12, Q4

Keywords: Heterogenous preferences; residential sector; revealed-preference data

Published as:

Grösche, P. and C. Vance (2009), Willingness-to-Pay for Energy Conservation and Free-Ridership on Subsidization – Evidence from Germany. Energy Journal 30 (2): 135-154.

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