Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/232035
Authors: 
Britto, Anthony
Dehler-Holland, Joris
Fichtner, Wolf
Year of Publication: 
2021
Series/Report no.: 
Working Paper Series in Production and Energy No. 56
Abstract: 
Despite the vast literature on the energy-efficiency gap, there is a general dearth of investment models which incorporate the consumer's temporal freedom in the investment decision. Focusing on the building sector, we formulate optimal investment in energy efficiency as a problem of wealth growth-rate maximisation under uncertainty, subject to the diminishing marginal utility of retrofitting. The resulting model provides an unambiguous answer to the question of how much, and at what point in time, consumers with given wealth dynamics and parameters should invest in energy-efficiency measures for their particular dwelling. We treat in detail two foundational wealth dynamics: consumers who solely earn a fixed income, and those whose wealth grows multiplicatively. The differences in decision-making between these cases is seen to be substantial, with the latter group exhibiting further significant heterogeneity. All of this has profound implications for the social planner: on the one hand, we show how he must work harder to influence wealthier consumers; on the other, the model provides a methodology for crafting highly targeted policy interventions.
Subjects: 
the energy-efficiency gap
energetic building retrofits
diminishing marginal utility
investment under uncertainty
growth-rate maximisation
social planning
retrofit incentives
JEL: 
D01
D04
D11
D15
G11
G51
O33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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