Energy efficiency, green technology and the pain of paying

Dayana Zhappassova (), Ben Gilbert and Linda Thunstrom ()
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Dayana Zhappassova: Department of Economics, University of Wyoming
Linda Thunstrom: Department of Economics, University of Wyoming

No 2018-03, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: It is well-known from the mental accounting literature that consumers would rather pay up-front for a luxury good like a vacation, but pay later for a durable good like a dishwasher. This occurs because the hedonic benefits and monetary costs enter differently in the mental accounts. But how does the mental accounting process change if the durable good saves money over time, as with an energy efficiency upgrade, or signals wealth and ``green status'', like a rooftop solar panel or an electric car? In this paper, we derive a mental accounting model of energy efficient and green durable investment that incorporates the consumer heterogeneity in the psychological ``pain of paying''. The model predicts that pain of paying attenuates the willingness to pay for status signaling and environmental protection, but increases the willingness to pay more up front in order to reduce long run energy bills. Consumers with a high pain of paying may therefore act as if they have a low discount rate when they are more accurately described as being conflicted about their intertemporal preferences. We test these predictions using a survey-based discrete choice experiment with solar and energy efficient homes, in which we measured individual subjects' susceptibility to pain of paying.

Keywords: mental accounting; pain of paying; solar; energy efficiency; green durables (search for similar items in EconPapers)
JEL-codes: D91 Q40 Q42 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2018-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-exp and nep-res
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http://econbus-papers.mines.edu/working-papers/wp201803.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mns:wpaper:wp201803

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