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Eller
1'
-A Demalid IlialJsis
Paul C. Stern, Editor
Panel on Energy Demand Analysis
Committee on Behavioral and Social
Aspects of Energy Consumption
and Procluction
Commission on Behavioral and Social
Sciences and Eclucation
National Research Council
NATIONAL ACADEMY PRESS
Washington, D. C. 1984
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NATIONAL ACADEMY PRESS ~ 2101 Constitution Avenue, N.W. ~ Washington, D.C. 20418
NOTICE: The project that is the subject of this report
was approved by the Governing Board of the National
Research Council, whose members are drawn from the
councils of the National Academy of Sciences, the
National Academy of Engineering, and the Institute of
Medicine. The members of the committee responsible for
the report were chosen for their special competences and
with regard for appropriate balance.
This report has been reviewed by a group other than
the authors according to procedures approved by a Report
Review Committee consisting of members of the National
Academy of Sciences, the National Academy of Engineering,
and the Institute of Medicine.
The National Research Council was established by the
National Academy of Sciences in 1916 to associate the
broad community of science and technology with the
Academy's purposes of furthering knowledge and of
advising the federal government. The Council operates in
accordance with general policies determined by the
Academy under the authority of its congressional charter
of 1863, which establishes the Academy as a private,
nonprofit, self-governing membership corporation. The
Council has become the principal operating agency of both
the National Academy of Sciences and the National Academy
of Engineering in the conduct of their services to the
government, the public, and the scientific and
engineering communities. It is administered jointly by
both Academies and the Institute of Medicine. The
National Academy of Engineering and the Institute of
Medicine were established in 1964 and 1970, respectively,
under the charter of the National Academy of Sciences.
Library of Congress Catalog Card Number 84-60902
International Standard Book Number 0-309-03477-9
Printed in the United States of America
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Panel on Energy Demand Analysis
JOHN M. DARLEY (Chair), Department of Psychology,
Princeton University
DAVID A. FREEDMAN, Department of Statistics, University
of California, Berkeley
DANIEL H. HILL, Institute for Social Research, University
of Michigan Ann Arbor
ERIC HIRST, Energy Division, Oak Ridge National
Laboratory, Oak Ridge, Tennessee
DANIEL L. MCFADDEN, Department of Economics,
Massachusetts Institute of Technology
LINCOLN MOSES, Department of Statistics, Stanford
University
PAUL C. STERN, Study Director
. · .
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Committee on Behavioral and Social Aspects
of Energy Consumption and Procluction
ELLIOT ARONSON (Chair), Stevenson College, University of
California, Santa Cruz
ROBERT AXELROD, Institute of Public Policy Studies,
University of Michigan
JOHN M. DARLEY, Department of Psychology, Princeton
University
SARA B. KIESLER, Department of Social Science.
Carnegie-Mellon University
DOROTHY LEONARD-BARTON, School of Business, Harvard
University
JAMES G. MARCH, Graduate School of Business, Stanford
University
JAMES N. MORGAN, Survey Research Center, University of
Michigan
PETER MORRISON, The Rand Corporation, Santa Monica,
California
LINCOLN MOSES, Department of Statistics, Stanford
University
LAURA NADER, Department of Anthropology, University of
California, Berkeley
STEVEN E. PERMUT, School of Organization and Management,
Yale University
ALLAN SCHNAIBERG, Department of Sociology, Northwestern
University
ROBERT H. SOCOLOW, Center for Energy and Environmental
Studies, Princeton University
THOMAS J. WILBANKS, Energy Division, Oak Ridge National
Laboratory, Oak Ridge, Tennessee
SIDNEY WINTER, School of Organization and Management,
Yale University
1V
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Preface
Since 1980 a Committee on Behavioral and Social Aspects
of Energy Consumption and Production has been functioning
within the National Research Council to draw on knowledge
from the social and behavioral sciences to improve under-
standing of energy consumption and production in the
United States. That committee's report (Stern and
Aronson, 1984) developed a new perspective on energy
issues and applied it to three areas of energy policy:
energy use and conservation, energy emergencies, and
energy activity at the local level.
The committee's behavioral perspective on energy use
was very different from that usually used in energy
demand models; in fact, the committee's report directly
questioned the typical assumption that energy users can
be adequately characterized as rational economic actors
making choices in a market. In light of this report, as
well as some evidence that demand models had not been
functioning adequately to forecast changes in energy
markets, the Office of Policy, Planning, and Analysis of
the U. S. Department of Energy called upon the committee
in 1983 to further examine the behavioral factors
identified in its earlier work also as to inform policy
analysis and enhance current analytical techniques,
especially energy policy models. n The charge was to
explore questions such as the following:
1. Do consumers respond to levels of energy prices,
changes in price, or the rate of change in price?
In other words, are responses to "price shocks"
different from ordinary price responses?
2. How is the price elasticity of demand affected by
other dynamically changing forces, such as the
quality of energy information available to
producers and consumers?
v
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3. Is a secular change beginning in consumer
preferences that will affect energy demand over
the long term independently of market events?
4. What might be useful early indicators of secular
trends in consumer preference, interactions
between energy prices and other variables, or
other postulated influences on energy demand?
5. How could future projections of energy demand take
issues such as the above into account?
The Department of Energy recognized that it would be
impossible to answer all these questions on the basis of
existing knowledge; the hope was rather to build a bridge
between the analyses of social and behavioral scientists
on one side and energy demand modelers on the other, and
to thus improve communication between the groups in order
to develop better energy analyses.
Examining the fields of expertise needed for the task
led the committee to the decision that it would be most
appropriate to create a new group, the Panel on Energy
Demand Analysis. The panel's members vary widely in
perspective and training. Some have studied energy
demand from the perspective of economics and others from
the viewpoints of other behavioral sciences. Some have
been generally sympathetic to the modeling enterprises
and others have been critical. In spite of--or perhaps
because of--such differences, the panel rapidly converged
on a shared definition of its work.
Since the time frame for the report was quite con-
strained and the resources available were quite limited
(insufficient, for example, to commission comprehensive
literature reviews, large-scale data collection projects,
or complete analyses of demand models in use for energy
demand predictions), the essential task of the panel had
to be a more general and abstract analysis of various
analytic strategies for predicting energy demand and
evaluating policy options. As would be expected, given
the constraints, the panel often raised questions without
attempting to provide the answers. One of the major con-
clusions of our report is that extensive data collection
efforts and theoretical development are necessary before
it will be possible to make adequate demand forecasts or
thorough and reliable policy analyses.
Although this report is a document of the whole panel,
the chapters reflect a division of labor in writing.
Chapter 1 was drafted by Paul Stern; Chapter 2 was drafted
by Daniel Hill; Chapter 3 was a collaboration of Paul
V1
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Stern, Linda Berry of Oak Ridge National Laboratory, and
Eric Hirst; Chapter 4 was drafted by John Darley and Paul
Stern; Chapter 5 was drafted by Daniel McFadden; and
Chapter 6 was a group product that Paul Stern put into
its final form. AS has already been mentioned, the
report was produced in what, at least to an academic,
seems to be a remarkably short period of time and while
the panel members were heavily engaged in their regular
patterns of activities. For these reasons, as well as
his own skills and knowledge in the area, a considerable
share of the final writing and editing of the report was
done by Paul Stern, the panel's study director.
Helpful comments were received from James Morgan and
Thomas Wilbanks of the parent committee and from reviewers
for the Commission on Behavioral and Social Sciences and
Education. In addition, it is a pleasure to express
appreciation to several other people who made important
contributions to the panel's work. These include John
Corliss, John Stanley-Miller, and Barry McNutt of the
Department of Energy; David Goslin and Heidi Hartmann,
executive director and associate executive director of
the Commission on Behavioral and Social Sciences and
Education; and Eugenia Grohman, the Commission's
associate director for reports.
JOHN M. DARLEY, Chair
Panel on Energy Demand Analysis
· ~
V11
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Contents
-
1 FORMAL MODELING AND PROBLEM-ORIENTED RESEARCH 1
Understanding the Demand for Energy, 1
About This Book, 5
Formal Models of Energy Demand, 7
Problem-Oriented Analyses of Energy Policy
Issues, 18
Conclusions, 25
2 THE EFFECTS OF PRICE ON DEMAND
Do Consumers React to Average or Marginal
Prices?, 28
Do Consumers React to Real or Nominal Prices?, 32
Do Consumers React to Price Levels or Price
Changes?, 35
Is There a Threshold for the Response to Price?, 38
Do Price Increases and Decreases Produce Different
Responses?, 39
Conclusions, 39
27
THE EFFECTS OF FINANCIAL INCENTIVES ON ENERGY-
EFFICIENT INVESTMENTS IN RESIDENTIAL BUILDINGS 43
How Does the Size of an Incentive Affect
Consumers' Responses?, 47
How Does the Type of Incentive Affect Consumers'
Responses?, 51
How Do Consumers Respond to Nonfinancial Features
of Incentive Programs?, 55
Conclusions, 58
ix
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4 THE EFFECTS OF INFORMATION ON ENERGY-EFFICIENT
INVESTMENT
How Complete IS Consumers' Information?' 62
How Does Information Affect Behavior?, 68
Conclusions, 74
s
61
BEHAVIORAL STUDY OF APPLIANCE EFFICIENCY DECISIONS 75
Issues and Limitations of Current Analysis, 76
The Ideal Data for Behavioral Study of Appliance
Choices, 81
Practical Alternatives for Data Collection, 83
CONCLUSIONS AND RECOMMENDATIONS
The Role of Formal Models, 87
The Role of Problem-Oriented Research, 91
The Role of Data Collection, 97
Using Various Research Methods in Concert, 101
REFERENCES
APPENDIX A INCORPORATING DATA FROM PROBLEM-CENTERED
RESEARCH ON INCENTIVES AND INFORMATION
IN FORMAL DEMAND MODELS
APPENDIX B BIOGRAPHICAL SKETCHES OF PANEL MEMBERS
AND STAFF
x
86
105
117
120
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goring Inert
~ leme
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