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

TY - JOUR

T1 - Time preference and consumer discount rates - Insights for accelerating the adoption of efficient energy and transport technologies

AU - Haq, Anwar Gary Anthony

AU - Weiss, Martin

N1 - © 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.

PY - 2018/12

Y1 - 2018/12

N2 - 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 novel technologies; (ii) accurate product labelling that makes 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 and transport technologies.

AB - 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 novel technologies; (ii) accurate product labelling that makes 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 and transport technologies.

KW - Consumer discount rates

KW - Efficient energy and transport technologies

KW - Energy efficiency

KW - Technology diffusion

KW - Time preference

UR - http://www.scopus.com/inward/record.url?scp=85054296593&partnerID=8YFLogxK

U2 - 10.1016/j.techfore.2018.06.045

DO - 10.1016/j.techfore.2018.06.045

M3 - Article

SN - 0040-1625

VL - 137

SP - 76

EP - 88

JO - Technological Forecasting and Social Change

JF - Technological Forecasting and Social Change

ER -