Abstract:
The “Energy Paradox”, whereby consumers undervalue energy efficiency investments, is one of the most puzzling phenomenon for energy policy researchers. Within this sector behavioral economics is beginning to provide understandings that cannot be explained using neoclassical economic theory. Using the results of a field experiment designed for this dissertation, several theories of behavior toward electricity consumption are examined. One of those theories, prospect theory, is applied for the first time using an incentive structure, or frame, called an Energy Efficiency Escrow (EEE). This treatment is compared with a traditional financial incentive structure called pay-for-performance (P4P), which itself has not yet been applied to the residential household energy sector. Although there were substantial energy reductions in both groups, the research found that consumers who were forced to calculate their potential gains (P4P-implicit gains) conserved more energy than those who were constantly updated on their potential losses (EEE-explicit losses). The P4P group also underestimated their final reward relative to the EEE group. Users who found elements of the EEE confusing actually increased their energy usage relative to their baseline. Additionally, higher baseline energy users in both groups conserved a higher percentage of their baseline energy use relative to lower baseline energy users.
