Willingness-to-Pay for Energy Conservation and Free-Ridership on Subsidization – Evidence from Germany

Figure 2: Share of Free-Rider for Selected Retrofit Options

(a) Roof, Window, Heating

(b) Roof, Window, Facade, Heating

this share, the histogram depicts the count of households for which the inequal-
ity sign in Equation (10) inflects, and the dashed line traces the corresponding
fraction of households that are designated as free-riders over different shares of
hidden cost.

Figure 3(a) displays the roof-window-heating option, for which 1054 of the
2128 western households have a WTP ≥ observed cost. Starting again with
the special case of zero hidden cost, the histogram indicates zero observations,
implying that in the absence of hidden cost all 1054 households can be treated as
free-riders. Correspondingly, the dashed line, which references the right ordinate,
indicates a fraction of just under 50% free-riders for this level of hidden cost.
Moving to the right along the abscissa and increasing the hypothetical share
of hidden cost increases the number of households for which the inequality in
Equation (10) inflects, meaning that these households can no longer be classified
as free-riders. For example, the most left bar of the histogram suggests that
there are some 20 households for which their total cost exceed their WTP for
a share of hidden cost between 0% and 5% of observed cost. Excluding these
20 households from the set of free-riders, the dashed line drops only slightly

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