to undermine the social benefits of the subsidization program. These objectives
are pursued using a unique data set of some 2530 owners of German single-family
homes, which combines real investment cost for 16 retrofit measures, engineering
estimates of the respective energy savings, and information on wage and material
costs along with the sociodemographic characteristics of the sampled households.
Our work builds on a handful of earlier studies of household energy consump-
tion behavior, most of which draw on data obtained from surveys in the U.S.
With respect to home retrofits, Cameron (1985) was among the first to analyze
household choice behavior using a nested logit model. She finds that income,
relative energy prices, and retrofit prices are the key determinants of demand
for conservation retrofits. Subsequent studies using U.S. household survey data
have extended this line of inquiry in a number of directions, including analyses
that address the effectiveness of energy conservation programs (Hartman 1988),
the effects of changes in energy prices on the consumption of housing, residen-
tial energy, and other goods (Quigley and Rubinfeld 1989), and the extent to
which homeowners apply high discount rates to home-improvement opportuni-
ties (Metcalf and Hassett 1999). Among the few studies of this issue from the
European context, Banfi et al. (2008) estimate household’s marginal willingness-
to-pay using an innovative stated choice experiment conducted among a sample
of Swiss apartment tenants and homeowners. Their estimates, obtained from a
multinominal logit model, suggest the importance of both energy savings as well
as comfort benefits as determinants of retrofit choices.
Although publicly financed programs to encourage energy conservation are
increasingly common in industrialized countries, only a few studies have inves-
tigated the magnitude of free rider effects. Joskow and Marron (1992) and Eto
et al. (1995) conduct a meta-analysis of free ridership by surveying evaluations
of demand-side management (DSM) programs conducted by U.S. utilities. With
respect to residential programs, the authors uncover a wide range of estimates,
varying from zero to up to 50% of free riders. However, most of the reviewed eval-