Estimating implicit discount rate for energy efficiency investment using the contingent valuation method: a case study in South Korea

Abstract

This study measures the implicit discount rate (IDR) for energy efficiency investment at the household level. Our pioneering attempt to use the contingent valuation method suggests fresh insights into relieving the possible problems induced when the IDR is estimated using multiple price list and open-ended questions. Using the survey data from 2392 respondents in South Korea, we measured the IDR for appliances with high energy efficiency. The measurement ranges from 21.80 to 25.94%, implying the overestimation in existing literature. This study contributes to the literature by determining the role of cognition and experience in energy efficiency investment. Cognition has a statistically significant negative impact on IDR and depends on the appliance type, whereas risk preference has no meaningful impact. Energy efficiency improvement experiences are the critical factor in reducing IDR, that is, promoting energy efficiency investment, especially for recently introduced appliances. Overall, our finding suggests that information that induces high cognition on the cost–benefit analysis and energy efficiency labeling can lower IDR and thus promote energy efficiency. Our study also suggests that targeting energy consumers who have experience in energy-saving campaigns or programs could be a priority because such experiences are crucial to IDR reduction.