CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

Abstract: When the agent making an investment decision is different from the one bearing the costs of the usage decision, the outcome (energy usage, in this case) is socially sub-optimal, a scenario known in the energy efficient technology case as “split incentive” effect. Using a sample of individual households from 11 OECD countries, this paper investigates the magnitude of the “split incentives” effect between home occupants who are owners and those who are renters. A wide variety of energy-related ‘technologies’ are considered: appliances, insulation, heat thermostat, solar panels, ground source heat pumps and wind turbines. The raw data provide a clear indication of difference in patterns of access to these technologies consistent with the “split incentives” hypothesis. Regression results suggest that, even after controlling for the sizeable differences in observed characteristics, owners are substantially more likely to have access to top-rated energy efficient appliances and to better insulation as well as to heat thermostats. For relatively immobile investments such as wind turbines and ground source heat pumps, we find a very small effect, possibly due to the differing institutional characteristics (such as availability of grants and regulations) which influence their adoption.

Keywords: Principal-Agent Problem; Split Incentives; Energy Effi ciency

JEL-codes: Q40; Q50

27 pages, October 30, 2013

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