Evaluating the Slow Adoption of Energy Efficient Investments: Are Renters Less Likely to Have Energy Efficient Appliances? December 2009 Lucas W. Davis UC – Berkeley Haas School of Business. Introduction.
Evaluating the Slow Adoption of Energy Efficient Investments: Are Renters Less Likely to Have Energy Efficient Appliances?
Lucas W. Davis
UC – Berkeley
Haas School of Business
While public discussion of HR 2454 (the ``Waxman-Markey’’ bill) has focused on the cap-and-trade program for carbon emissions, the bill also includes provisions that would tighten energy efficiency standards for household appliances.
Does it make sense to use standards in conjunction with cap-and-trade? What is the economic rationale for standards?
Supporters of standards argue that they address additional market failures that would not be solved by cap-and-trade.
The principal (the tenant) is hiring the agent (the landlord) to provide housing services. Problems arise, however, because the two parties have difference incentives.
Although in theory investments in energy-efficiency could be passed on in higher rents, it may be difficult for landlords to effectively convey this information.
The overall magnitude of this market failure may be large.
The landlord-tenant problem has been widely discussed. Blumstein, Krieg, and Schipper (1980); Fisher and Rothkopf (1989); Jaffe and Stavins (1994); Nadel (2002); Gillingham, Newell and Palmer (2009)
However, the available empirical evidence is very limited.
This paper compares ownership patterns between homeowners and renters.
Results provide some empirical support for conventional wisdom about landlord-tenant problem.
This market failure is difficult to address with policy.
Standards address problem, but are an imperfect tool.
A complementary approach (also imperfect) would be to provide Energy Star labels for rental units themselves.
This could work well with pending weatherization legislation.