Optimal Consumption and Investment with Energy-Efficiency Adoption
Anthony Britto, Carlos Oliveira, Max Kleinebrahm
TLDR
This paper presents a unified economic model for optimal consumption, investment, and energy-efficiency adoption, considering uncertainty and subsidies.
Key contributions
- Proposes a unified model for consumption, investment, and energy-efficiency adoption under uncertainty.
- Develops new definitions for rebound/backfire effects and integrates them into optimal subsidy design.
- Derives adoption thresholds and strategies, showing dependence on agent wealth and financial conditions.
- Formalizes macro-level technology diffusion and consumption across heterogeneous agents.
Why it matters
This paper provides a much-needed unified economic framework to analyze energy consumption and efficiency adoption. It offers insights into optimal subsidy design and how financial conditions impact technology adoption, crucial for policy.
Original Abstract
Despite many decades of research, economically grounded models that analyse energy consumption and energy-efficiency adoption within a unified framework remain underdeveloped. This article addresses this gap by proposing a model of consumption, investment, and energy-efficiency adoption under uncertainty. It develops new definitions of the rebound and backfire effects, and integrates their welfare implications into a model of optimal subsidy design. Macro-level technology diffusion and energy consumption across heterogeneous agents are also formalised. Explicit results for core objects are derived, including the adoption threshold and post-adoption strategies, and these are shown to depend on agent wealth, introducing a novel channel through which financial conditions influence technology-adoption decisions. An approximation scheme is proposed to estimate welfare implications explicitly. Adoption of energy efficiency is shown to be welfare improving in the main. A detailed case study of a representative German single-family home illustrates the theoretical results. Numerical analysis indicates that the subsidy policy effectively steers aggregate energy consumption.
📬 Weekly AI Paper Digest
Get the top 10 AI/ML arXiv papers from the week — summarized, scored, and delivered to your inbox every Monday.