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Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables

Jerry A. Hausman
The Bell Journal of Economics
Vol. 10, No. 1 (Spring, 1979), pp. 33-54
Published by: RAND Corporation
DOI: 10.2307/3003318
Stable URL: http://www.jstor.org/stable/3003318
Page Count: 22
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Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables
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Abstract

This article presents a model of individual behavior in the purchase and utilization of energy-using durables. The tradeoff between capital costs for more energy efficient appliances and operating costs for the appliances is emphasized. Using data on both the purchase and utilization of room air conditioners, the model is applied to a sample of households. The utilization equation indicates a relatively low price elasticity. The purchase equation, based on a discrete choice model, demonstrates that individuals do trade off capital costs and expected operating costs. The results also show that individuals use a discount rate of about 20 percent in making the tradeoff decision and that the discount rate varies inversely with income.

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