This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

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Time Discounting and Time Preference: A Critical Review

This paper explores the interface between personality psychology and economics. We examine the predictive power of personality and the stability of personality traits over the life cycle. We develop simple analytical frameworks for interpreting the evidence in personality psychology and suggest promising avenues for future research.

The Economics and Psychology of Personality Traits

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We estimate individual discount rates with respect to time streams of money using controlled laboratory experiments. These discount rates are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 268 people between 19 and 75 years of age. Individual discount rates are estimated for various households differentiated by socio-demographic characteristics such as income and age. Our conclusions are that discount rates are constant over the 12-month to 3-year horizons used in these experiments, and that discount rates vary substantially with respect to several socio-demographic variables. Hence we conclude that it would be reasonable to assume constant discount rates for specific household types, but not the same rates across all households.

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Estimating Individual Discount Rates in Denmark: A Field Experiment

The relationship between technological change and environmental policy has received increasing attention from scholars and policy makers alike over the past ten years. This is partly because the environmental impacts of social activity are significantly affected by technological change, and partly because environmental policy interventions themselves create new constraints and incentives that affect the process of technological developments. Our central purpose in this article is to provide environmental economists with a useful guide to research on technological change and the analytical tools that can be used to explore further the interaction between technology and the environment. In Part 1 of the article, we provide an overview of analytical frameworks for invest- igating the economics of technological change, highlighting key issues for the researcher. In Part 2, we turn our attention to theoretical analysis of the effects of environmental policy on technological change, and in Part 3, we focus on issues related to the empirical analysis of technology innovation and diffusion. Finally, we conclude in Part 4 with some additional suggestions for research.

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Environmental policy and technological change

cooling equipment. Accurate forecasts of residential energy use require quantitative assessments of market decisions about energy efficiency. The results of our investigation of market behavior can lead to a better understanding of the barriers to investment in energy conservation. Understanding market behavior over time is a prerequisite to an evaluation of the need for and the importance of policies to promote energy efficiency. Our results are particularly important to an assessment of the desirability of such federal policies as appliance efficiency standards. To the extent that the market place is effectively influencing the purchase of energy-efficient household appliances, there is little need for federal policies to modify market forces. To the extent that the market for energy efficiency is not performing effectively, the justification for policy intervention is supported. The major finding of this study is that the payback periods for investment in increasing the energy efficiency of most household appliances are two years or less. Except for air conditioners, the discount rates corresponding to these

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The Behavior of the Market for Energy Efficiency in Residential Appliances Including Heating and Cooling Equipment

This paper presents a framework for evaluating engineering-economic evidence on the diffusion of energy efficiency improvements. Four examples are evaluated within this framework. The analysis provides evidence of market failures related to energy efficiency. Specific market failures that may impede the adoption of cost-effective energy efficiency are discussed. Two programs that have had a major impact in overcoming these market failures, utility DSM programs and appliance standards, are described.

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Energy efficiency, market failures, and government policy

This paper provides a quantitative analysis of the behavior of the market for the purchase of energy efficiency in residential appliances and heating and cooling equipment. We examine the historical efficiency choices over the period 1972 to 1980 for eight consumer products: gas central space heaters, oil central space heaters, room air conditioners, central air conditioners, electric water heaters, gas water heaters, refrigerators, and freezers. We characterize the behavior of the market for these products by an aggregate market discount rate. Except for air conditioners, the observed discount rates are much higher than real interest rates or the discount rates commonly used in life-cycle cost analysis of consumer choice. They appear to be relatively constant, even though fuel prices escalated rapidly over the time period. We conclude from these results that the market for energy efficiency is not performing well. Several explanations of the under investment in efficiency are proposed: (1) lack of information about the costs and benefits of energy efficiency; (2) prevalence of third party purchasers; (3) unavailability of highly efficient equipment without other features; (4) long manufacturing lead times; and (5) other marketing strategies.

Energy efficiency choice in the purchase of residential appliances

In his recent paper in The Energy Journal, Ronald Sutherland argues that several so-called market barriers'' to energy efficiency frequently cited in the literature are not market failures in the conventional sense and are thus irrelevant for energy policy. We argue that Sutherland has inadequately analyzed the idea of market barrier and misrepresented the policy implications of microeconomics. We find that economic theory, correctly interpreted, does not provide for the categorical dismissal of market barriers. We explore important methodological issues underlying the debate over market barriers, and discuss the importance of reconciling the findings of non-economic social sciences with the economic analysis of energy demand and consumer decision-making. We also scrutinize Sutherland's attempt to apply finance theory to rationalize high implicit discount rates observed in energy-related choices, and find this use of finance theory to be inappropriate.

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Levine

Papers

The Behavior of the Market for Energy Efficiency in Residential Appliances Including Heating and Cooling Equipment

Energy efficiency, market failures, and government policy

Energy efficiency choice in the purchase of residential appliances

On the economic analysis of problems in energy efficiency: Market barriers, market failures, and policy implications