Time preference and consumer discount rates - Insights for accelerating the adoption of efficient energy and transport technologies

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JournalTechnological Forecasting and Social Change
DateAccepted/In press - 27 Jun 2018
DateE-pub ahead of print - 28 Aug 2018
DatePublished (current) - Dec 2018
Volume137
Number of pages13
Pages (from-to)76-88
Early online date28/08/18
Original languageEnglish

Abstract

The adoption of efficient energy and transport technologies often depends on how consumers discount energy savings. Understanding the rate of discounting and the choices consumers make is therefore essential for successful energy efficiency policy. Here, we review pertinent discount rates, identify factors influencing consumer preferences, and derive recommendations for policy makers. We find that consumers apply discount rates of 19 ± 17% when purchasing efficient energy and transport technologies. Discount rates span a wide range both within and between groups of technologies and tend to exceed the market interest rate. High discount rates may not always reflect behavioural errors but instead express the context-specific time and utility preferences of
consumers facing liquidity constraints, opportunity costs, transaction costs, and multiple uncertainties when making a purchasing decision. By addressing these factors, energy efficiency can be promoted through: (i) innovative leasing schemes that lower the investment cost of efficient technologies; (ii) accurate product labelling that make costs and product functionalities transparent; and (iii) extended warranty, replacement, and take-back options that mitigate consumer risks. The inability of consumers to verify energy savings and attribute them to a specific investment has received little attention but arguably constitutes a major barrier for the diffusion of energy efficient technologies.

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© 2018 Published by Elsevier Inc. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy.

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