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The Effect of Mail-in Utility Rebates on Willingness-to-Pay for ENERGY STAR\(^{\textregistered }\) Certified Refrigerators

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Abstract

The number and variety of governmental programs designed to promote energy efficiency have increased over time. Examples include mandatory minimum efficiency standards, subsidies for more energy efficient goods and services, and consumer labels, such as the United States Environmental Protection Agency’s ENERGY STAR\(^{\textregistered }\). While there has been considerable research on the effects of these programs in isolation, there has been less of a focus on joint effects or interactions between programs. This study examines how the offer of a mail-in rebate influences consumer willingness-to-pay for an ENERGY STAR-certified refrigerator. Data used for this study were collected from an online survey containing a hypothetical choice experiment conducted in the United States in 2009. Results suggest that the offer of a rebate induces uncertainty about the quality of ENERGY STAR-certified refrigerators and, thus, could actually reduce willingness-to-pay for such refrigerators.

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Notes

  1. Similarly, the Consumer Assistance to Recycle and Save Act of 2009 created a program subsidizing the trade-in of less fuel-efficient for more fuel-efficient motor vehicles in what became known as the “cash-for-clunkers” program.

  2. See Clark et al. (2011) for a detailed description of the survey.

  3. The cost saving estimate was based on USEPA estimates of cost-savings ranging from $12 to $15.

  4. It may be of interest to note that the price levels are equidistant and the difference from one level to the next is equal to the amount of the rebate $50. Thus, all else equal, one might expect respondents in the WR treatment to prefer an ENERGY STAR-certified refrigerator to one that was not, as long as the ENERGY STAR refrigerator was not more than one price level more expensive than the other.

  5. Familiar was chosen as a scaling term as it outperformed a variety of different individual-specific variables and combinations of variables in terms of log likelihood score and statistical significance. In general, choice of scaling term(s) had a relatively limited effect on coefficient estimates for the product attributes.

  6. Because WTP is a linear function of demographic variables \(H_i\), the sample mean of WTP is the same as WTP evaluated at the sample mean \(\bar{{H}}\).

  7. We find support for estimating two separated models across rebate version by testing the null hypothesis that rebate interaction terms (rebate \(\times \) attributes) are jointly zero in the pooled model. Using a Likelihood Ratio (LR) test comparing the pooled model with the rebate interaction terms (log-likelihood = \(-\)8,210.63) with the pooled model with no rebate interaction terms (log-likelihood = \(-\)8,230.39), we find a calculated test statistic of \(LR_{(df=11)} =39.51>critical\,\chi _{(11,0.05)}^2 =19.68\). Hence, the null hypothesis is rejected, suggesting the models should be separated across whether the respondent participated in the rebate version.

  8. Since we estimated two separated models differentiated only by the rebate version (see Note 7), and the WTP estimates for the ENERGY STAR certification for both models were calculated, we would like to compare WTP distributions of the two groups; given that the two distributions are asymptotically normal, we used a \(z\) test with unequal variances for the comparison between the means of WTP estimates. The test statistic of the \(z\) test with unequal variances is calculated as follows:

    $$\begin{aligned} z=\frac{\overline{WTP}_{WR} -\overline{WTP}_{WOR}}{\sqrt{\frac{s_{WR}^2 }{N_{WR} }+\frac{s_{WOR}^2 }{N_{WOR} }}} \end{aligned}$$

    where \(\overline{WTP}\) is the sample mean, \(s^{2}\) is the variance, and \(N\) is the sample size of, respectively, the WOR group and the WR group.

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Authors and Affiliations

  1. Department of Agricultural and Resource Economics, University of Tennessee, 321 Morgan Hall, 2621 Morgan Circle, Knoxville, TN, 37996, USA

    Xiaogu Li, Christopher D. Clark, Kimberly L. Jensen & Steven T. Yen

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  1. Xiaogu Li
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  2. Christopher D. Clark
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Correspondence to Xiaogu Li.

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This research was funded, in part, by a Grant from the United States Environmental Protection Agency’s Science to Achieve Results (STAR) grant program though Grant Number R832849 to the University of Tennessee. Although the research described in the article has been funded by the United States Environmental Protection Agency, it has not been subjected to the Agency’s peer and policy review and therefore does not necessarily reflect the views of the Agency and no official endorsement should be inferred.

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Li, X., Clark, C.D., Jensen, K.L. et al. The Effect of Mail-in Utility Rebates on Willingness-to-Pay for ENERGY STAR\(^{\textregistered }\) Certified Refrigerators. Environ Resource Econ 63, 1–23 (2016). https://doi.org/10.1007/s10640-014-9833-5

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