Who's Your Agent? Quantifying Energy Affected by the Principal-Agent Barrier in U.S. Households

May 9, 2006 - 12:00pm
Bldg. 90

This presentation describes a recent study assessing the magnitude of principal-agent (PA) problems in the U.S. residential sector, which found that over half of the energy consumed by four major end uses is affected by PA problems. This problem is often cited as one of the main barriers to greater energy efficiency. It may arise when an agent buys a piece of equipment that has lower initial costs but is more expensive over its lifetime because the agent saves money on the initial cost while the principal pays the operating costs.  In the residential sector, PA problems often exist between renters and landlords. The renter pays the landlord (agent) for the use of the apartment and any included furniture and appliances. The renters would prefer to have efficient appliances that produce lower utility costs, but their agents, the landlords, are more concerned with initial costs since they do not incur the expense of running the appliances. PA problems may also occur for occupant-owned houses that have appliances pre-installed by the builders.  The authors used a novel approach to estimating the energy consumption affected. For any given technology, determining the cases involving a PA problem may be conceptualized as a two-by-two matrix that classifies the technology according to user's ability to choose the technology and the user's responsibility for paying associated energy costs. Detailed data from the American Housing Survey and the Residential Energy Consumption Survey to group households according to their PA classification for refrigerators, water heating, space heating, and lighting.

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