Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/142766 
Year of Publication: 
2016
Series/Report no.: 
Working Paper Sustainability and Innovation No. S04/2016
Publisher: 
Fraunhofer-Institut für System- und Innovationsforschung ISI, Karlsruhe
Abstract: 
Implicit discount rates (IDRs) are employed in energy models to capture household investment decisions, yet the factors behind the IDR and their respective implications for policy-making usually remain blurred and fractional. The proposed comprehensive framework distinguishes three broad categories of factors underlying the IDR for household adoption of energy-efficient technologies (EETs): preferences (notably over time, risk, loss, debt, and the environment), predictable (ir)rational behavior (bounded rationality, rational inattention, behavioral biases), and external barriers to energy efficiency. Existing empirical findings suggest that the factors underlying the IDRs that differ across household characteristics and technologies should be accounted for in energy models. Furthermore, the framework allows for a fresh look at the interplay of IDRs and policies. We argue that a simple observation of high IDRs (or observing correlations between IDRs and socio-economic characteristics) does not provide guid-ance for policy-making since the underlying sources cannot be identified. In-stead, we propose that some of the factors underlying the IDR - notably external barriers - can be changed (through directed policy interventions) whereas other factors - notably preferences and predictable (ir)rational behavior - are innate and can only be taken into account (through reactive policy interventions).
Subjects: 
energy efficiency
energy modeling
implicit discount rate
energy policy
behavioral economics
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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