New working paper on household energy-efficiency investments:
Residential energy-efficiency renovations are often financially attractive, yet many households delay or never undertake them. What explains this gap?
In a new working paper with my fantastic co-authors Christoph Hambel and Marlene Koch, we address this question using a continuous-time life-cycle model in which households jointly choose consumption, portfolio allocation, energy consumption, and the timing of energy-efficiency renovations under uncertainty.
Our results show that liquidity constraints and mortality risk are the main barriers to renovation, even when the expected financial returns are positive. We also find that broad renovation subsidies primarily benefit households that would have renovated anyway, whereas policies that improve access to financing are substantially more effective.
The paper contributes to both the household finance and energy economics literatures by providing a structural framework to study energy-efficiency investment decisions over the life-cycle.
