The effect of weather on the willingness to pay for residential energy-efficiency

Sejas-Portillo, Rodolfo (2023) The effect of weather on the willingness to pay for residential energy-efficiency. Geography and Environment Discussion Paper Series (42). Department of Geography and Environment, LSE, London, UK.

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Abstract

I study the effects of weather conditions on the economic valuation of energy-efficiency (EE) in the UK housing market. The benefits of EE features depend directly on the expected weather over the ownership time frame (e.g. insulation for maintaining heat during cold periods). However, due to its notorious unpredictability, current weather conditions provide little to no additional information about future weather conditions (beyond common knowledge such as seasonal temperatures). Using transaction-level data of over 5 million residential property sales in England and Wales, I find that weather conditions on the month the buying decision is made can disproportionately influence the EE valuation of properties: During rough weather (i.e. cold and rainy) the EE rating of a property has a stronger influence on its sale price than during favourable weather (i.e. warm and dry). I show that these results are unlikely to be driven by energy-cost optimisation or self-selection behaviour. The consistency of the results with intuitive predictions (in the UK the benefits of EE are much higher during rough weather) highlights their importance: People understand the benefits of EE yet make biased intertemporal valuations. I model and discuss psychological biases as the most likely mechanisms and find that salience appears to have the stronger effect. I also present a novel extension to the regression-kink design (RDK) for identifying and estimating the treatment effect when the running variable also moderates the effect of another variable (via interaction). I conclude with policy recommendation.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.lse.ac.uk/geography-and-environment/re...
Additional Information:	© 2023 The Author
Divisions:	Geography & Environment
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply
Date Deposited:	07 Jun 2023 15:30
Last Modified:	14 Sep 2024 04:36
URI:	http://eprints.lse.ac.uk/id/eprint/119358

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