DIVISION OF THE HUMANITIES AND SOCIAL SCIENCES CALIFORNIA INSTITUTE OF TECHNOLOGY PASADENA, CALIFORNIA 91125 Market Barriers to Conservation: Are Implicit Discount Rates Too High?

Abstract

This paper reconsiders whether implicit discount rates, generally cited as a market barrier to conservation, are really too high, and demonstrates that probabilistic choice studies of consumer durable purchases and hedonic housing price regression studies mea­ sure similar but non-identical discount factors. Four hedonic regression studies are re­ viewed which attempt to ascertain whether and to what extent the housing market capi­ talizes energy conservation investments. A theoretical model is presented which links the probabilistic choice and hedonic regression methods and shows how using results from both studies allows measurement of individual discount rates without bias. The paper identifies several factors which cause the degree of capitalization to differ from unity, resulting in consumer decisions which are rational from the individual perspective, but which can lead to low levels of social conservation. Market Barriers to Conservation: Are Implicit Discount Rates Too High?*

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Cite this paper

@inproceedings{Dubin2006DIVISIONOT, title={DIVISION OF THE HUMANITIES AND SOCIAL SCIENCES CALIFORNIA INSTITUTE OF TECHNOLOGY PASADENA, CALIFORNIA 91125 Market Barriers to Conservation: Are Implicit Discount Rates Too High?}, author={Jeffrey A. Dubin and Charles C. Cicchetti}, year={2006} }