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

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  • Haq, Gary
  • Weiss, Martin

Abstract

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.

Suggested Citation

  • Haq, Gary & Weiss, Martin, 2018. "Time preference and consumer discount rates - Insights for accelerating the adoption of efficient energy and transport technologies," Technological Forecasting and Social Change, Elsevier, vol. 137(C), pages 76-88.
  • Handle: RePEc:eee:tefoso:v:137:y:2018:i:c:p:76-88
    DOI: 10.1016/j.techfore.2018.06.045
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    Cited by:

    1. Aryanpur, Vahid & Balyk, Olexandr & Daly, Hannah & Ó Gallachóir, Brian & Glynn, James, 2022. "Decarbonisation of passenger light-duty vehicles using spatially resolved TIMES-Ireland Model," Applied Energy, Elsevier, vol. 316(C).
    2. Cynthia Nneka Olumba & Guy Garrod & Francisco Jose Areal, 2024. "Time Preferences, Land Tenure Security, and the Adoption of Sustainable Land Management Practices in Southeast Nigeria," Sustainability, MDPI, vol. 16(5), pages 1-22, February.
    3. Djiby Racine Thiam & Ariel Dinar & Hebert Ntuli, 2021. "Promotion of residential water conservation measures in South Africa: the role of water-saving equipment," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(1), pages 173-210, January.
    4. Agovino, Massimiliano & Ferraro, Aniello & Garofalo, Antonio, 2023. "Are green cars an optimal and efficient choice for motorists? Evidence from Italy," Transport Policy, Elsevier, vol. 141(C), pages 140-151.
    5. HONJO Yuji & IKEUCHI Kenta & NAKAMURA Hiroki, 2022. "Does risk aversion affect individuals’ actions and interests in angel investing? Empirical evidence from Japan," Discussion papers 22040, Research Institute of Economy, Trade and Industry (RIETI).
    6. Carrasco-Garcés, Moisés & Vásquez-Lavín, Felipe & Ponce Oliva, Roberto D. & Diaz Pincheira, Francisco & Barrientos, Manuel, 2021. "Estimating the implicit discount rate for new technology adoption of wood-burning stoves," Energy Policy, Elsevier, vol. 156(C).
    7. Oluleye, Gbemi & Gandiglio, Marta & Santarelli, Massimo & Hawkes, Adam, 2021. "Pathways to commercialisation of biogas fuelled solid oxide fuel cells in European wastewater treatment plants," Applied Energy, Elsevier, vol. 282(PA).
    8. Rey-Moreno, Manuel & Medina-Molina, Cayetano, 2020. "Dual models and technological platforms for efficient management of water consumption," Technological Forecasting and Social Change, Elsevier, vol. 150(C).
    9. Edelenbosch, OY & Rovelli, D & Levesque, A & Marangoni, G & Tavoni, M, 2021. "Long term, cross-country effects of buildings insulation policies," Technological Forecasting and Social Change, Elsevier, vol. 170(C).
    10. Lekavičius, V. & Bobinaitė, V. & Galinis, A. & Pažėraitė, A., 2020. "Distributional impacts of investment subsidies for residential energy technologies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 130(C).
    11. Marianne Pedinotti-Castelle & Pierre-Olivier Pineau & Kathleen Vaillancourt & Ben Amor, 2021. "Changing Technology or Behavior? The Impacts of a Behavioral Disruption," Sustainability, MDPI, vol. 13(11), pages 1-23, May.

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