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Estimating the implicit discount rate for new technology adoption of wood-burning stoves

Moisés Carrasco-Garcés, Felipe Vásquez-Lavín, Roberto D. Ponce Oliva, Francisco Diaz Pincheira and Manuel Barrientos
Authors registered in the RePEc Author Service: Felipe A. Vásquez Lavín

Energy Policy, 2021, vol. 156, issue C

Abstract: In the last decade, there have been several initiatives to incentivize Efficient Energy Technologies (EET) to reduce air pollution caused by wood-burning in developing countries. More efficient woodstoves can improve health, reduce family expenditures, CO2 emissions, and forest degradation. Despite these benefits, there is low level of adoption of EETs. This paper contributed to the literature in three ways. First, it estimates the implicit discount rate (IDR) used by individuals to decide whether to adopt EET using exponential and hyperbolic specifications. Second, it includes sociodemographic characteristics in the definition of the IDR. Third, it evaluates how the adoption curve changes by different policy designs. Since the interest rate is part of the policy design, comparing the interest rate and the IDR is relevant to increasing adoption. Our monthly estimated IDR is between 1.7% and 5.4% with a significant overlap with market interest rate. The IDR is affected by the perception of the future economic situation, trust in environmental authorities, happiness, and gender. We found that using an interest rate lower than the IDR increases the probability of adoption significantly. An understanding of the effects of copayments, payment frequencies, and difference between interest rates and IDR is needed to maximize adoption.

Keywords: Efficient energy technologies; Implicit discount rate; Stated preferences; Intertemporal choice; Energy regulation (search for similar items in EconPapers)
JEL-codes: Q51 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:156:y:2021:i:c:s0301421521002779

DOI: 10.1016/j.enpol.2021.112407

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