Making the implicit explicit: A look inside the implicit discount rate

By J. Schleich, Xavier Gassmann, Corinne Faure, Thomas Meissner. 2016

122 citations recorded by the source corpus.

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 guidance for policy-making since the underlying sources cannot be identified. Instead, 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).

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/3ac6207464500a87c7cc27b998ce82206f3e20bc

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. C. Cattaneo
2. Xavier Gassmann
3. Thomas Meissner
4. Corinne Faure
5. J. Schleich
6. David Popp

In Renewable Energy, Sustainability and the Environment

1. C. Cattaneo
2. Xavier Gassmann
3. Thomas Meissner
4. Corinne Faure
5. J. Schleich
6. Patrik Thollander
7. T. Fleiter

Citations in the corpus

• Adoption of energy efficient technologies by households – Barriers, policies and agent-based modelling studies (2019, unknown): “In the case of a model based on net present value calculations the barriers and factors are all reduced to a unidimensional unit: money and captured in an implicit discount rate [8].”
• Internal and external barriers to energy efficiency: which role for policy interventions? (2019, background): “Internal barriers and adoption or energy use According to Schleich et al. (2016), internal barriers to energy efficiency are related to preferences and predictable (ir)rational behavior.”
• A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies (2019, background): “High discount rates, present bias, and/or risk aversion may help explain the so-called ‘energy efficiency paradox’, according to which households fail to invest in EETs even though these appear to pay off under prevailing market conditions (e.g. Allcott and Mullainathan, 2010; Allcott, 2011; Gerarde”