Willingness to pay and price elasticities of demand for energy-efficient appliances: Combining the hedonic approach and demand systems

This article proposes a combined approach for estimating willingness to pay for the attributes represented by energy efficiency labels and providing reliable price elasticities of demand (own and cross) for close substitutes (e.g. those with low energy efficiency and those with higher energy efficie...

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Bibliographic Details
Published in:Energy economics 2011-12, Vol.33 (Supp.), p.S66-S74
Main Authors: Galarraga, Ibon, González-Eguino, Mikel, Markandya, Anil
Format: Article
Language:English
Subjects:
Applied sciences
Bulging
Computer simulation
Demand
Demand models
Demand systems
Economic data
Economics
Elasticity
Electric energy
Energy
Energy conservation
Energy economics
Energy efficiency
Energy efficiency labelling
Energy policy
Exact sciences and technology
General, economic and professional studies
Hedonic method
Household appliances (dishwashers)
Household equipment
Labels
Marketing
Markets
Methodology. Modelling
Power demand
Price elasticity
Simulation
Spain
Willingness-to-pay
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Summary:This article proposes a combined approach for estimating willingness to pay for the attributes represented by energy efficiency labels and providing reliable price elasticities of demand (own and cross) for close substitutes (e.g. those with low energy efficiency and those with higher energy efficiency). This is done by using the results of the hedonic approach together with the Quantity Based Demand System (QBDS) model. The elasticity results obtained with the latter are then compared with those simulated using the Linear Almost Ideal Demand System (LA/AIDS). The methodology is applied to the dishwasher market in Spain: it is found that 15.6% of the final price is actually paid for the energy efficiency attribute. This accounts for about €80 of the average market price. The elasticity results confirm that energy efficient appliances are more price elastic than regular ones. ► The article shows a combined approach for estimating willingness to pay for energy efficiency labels and price elasticities. ► The results of the hedonic approach is used together with the Quantity Based Demand System (QBDS) model. ► The elasticity results are compared with those simulated using the Linear Almost Ideal Demand System (LA/AIDS). ► The methodology is applied to the dishwasher market in Spain.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2011.07.028