EconPapers    
Economics at your fingertips  
 

Double Moral Hazard and the Energy Efficiency Gap

Louis-Gaëtan Giraudet and Sébastien Houde
Additional contact information
Sébastien Houde: University of Maryland [College Park] - University of Maryland System

CIRED Working Papers from HAL

Abstract: We investigate how moral hazard problems can cause sub-optimal investment in energy efficiency, a phenomenon known as the energy efficiency gap. We focus on contexts where both the seller and the buyer of an energy saving technology can take hidden actions. For instance, a home retrofit contractor may cut on the quality of installation to save costs, while the homeowner may increase her use of energy service when provided with higher energy efficiency. As a result, neither energy efficiency quality nor energy use are fully contractible. We formalize the double moral hazard problem and discuss how it can help rationalize the energy efficiency gap. We then compare two policy instruments: minimum quality standards and energy-savings insurance. Their relative efficiency depends on the balance between the monitoring costs associated with the former and the deadweight loss of the consumer's action induced by the latter. Calibrating the model to the U.S. retrofit industry, we find that at current market conditions, standards tend to outperform insurance. We also find that the welfare gains from undoing the double moral hazard are substantially larger than those from internalizing carbon dioxide externalities associated with underlying energy use.

Keywords: Energy efficiency gap; moral hazard; energy-savings insurance; minimum quality standard; credence good; rebound effect. (search for similar items in EconPapers)
Date: 2015-04-30
New Economics Papers: this item is included in nep-ene, nep-ias and nep-reg
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01260907
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://hal.archives-ouvertes.fr/hal-01260907/document (application/pdf)

Related works:
Working Paper: Double moral hazard and the energy efficiency gap (2014) Downloads
Working Paper: Double moral hazard and the energy efficiency gap (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:ciredw:hal-01260907

Access Statistics for this paper

More papers in CIRED Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2021-01-09
Handle: RePEc:hal:ciredw:hal-01260907