How Disagreement about Social Costs leads to Inefficient Energy Productivity Investment

Achim Voß

No 201287, Working Papers from Institute of Spatial and Housing Economics, Munster Universitary

Abstract: Public energy productivity investment influences the amount of future energy consumption. If a present government expects its successor to value the social costs of fuel usage di erently, this adds a trategic component to its investment considerations. We analyze this governmental time-inconsistency situation as a sequential game. In particular, we show how the expectation of a more conservative party taking over makes a “green” government choose an investment level that is inecient in that neither of the parties would prefer it to the investment level of a permanent green government. Under some circumstances, the opposition would even prefer the government to stay in power for sure: The gain of avoiding strategic investment then outweighs the loss of not being able to regulate energy consumption. We also analyze welfare gains of binding agreements.

Keywords: political economics; environmental policy; energy policy; energy efficiency; rebound e ects; energy externalities; strategic investment; sequential games; time-inconsistency (search for similar items in EconPapers)
JEL-codes: D72 Q48 Q55 Q58 (search for similar items in EconPapers)
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Journal Article: How Disagreement About Social Costs Leads to Inefficient Energy-Productivity Investment (2015)
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