How present bias forestalls energy efficiency upgrades: A study of household appliance purchases in India

• Published in: Journal of cleaner production 2018-06, Vol.186, p.558-569
• Main Authors: Fuerst, Franz, Singh, Ramandeep
• Format: Article
• Language: English
• Subjects: Energy efficiency gap; Inter-temporal choice; Present bias
• ISSN: 0959-6526; 1879-1786
• DOI: 10.1016/j.jclepro.2018.03.100

This paper investigates household decision-making behaviour in the market for energy-efficient lighting and appliances in Delhi, India to study the energy efficiency gap using the inter-disciplinary framework of behavioural economics. A primary dataset of survey responses and choice experiments is analysed to test whether under-investment in energy-efficient technologies is explained by present-biased preferences. A ‘Multiple Price List’ set is employed to compute the standard discount factor, and the present bias and long-run component of a quasi-hyperbolic specification. Individuals who are more patient and less present-biased are found to be more likely to invest in certain energy-efficient appliances. As expected, time preferences are relevant for larger purchases such as refrigerators but lose some or all of their explanatory power for inexpensive purchases such as light bulbs. Our quantitative study contributes to the existing literature, which is limited to qualitatively identifying the (market failure) barriers for energy efficiency; inter alia, it tests for behavioural failures in individuals' decision-making towards the environment.