Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

Measuring the Welfare Effects of Residential Energy Efficiency Programs with Self-Selection into Program Participation

July 2017
Hunt Allcott, Michael Greenstone

We introduce a framework to evaluate the welfare effects of residential energy efficiency programs and estimate key parameters using a 100,000-household field experiment. Results generally contradict conventional wisdom: there is no evidence of informational or behavioral market failures, efficiency investments entail large non-monetary costs and benefits, and realized energy savings are just 58% of engineering predictions. The programs we study reduce social welfare by $0.18 per subsidy dollar, because investment subsidies are poorly targeted to externality damages and marginal program participants are unlikely to make externality-reducing investments. Such self-selection may undermine socially desirable program expansion in this and other domains.