Environmental/Resources Workshop: Erica Myers (University of California/Berkeley) "Asymmetric Information in Residential Rental Markets: Implications for the Energy Efficiency Gap"

Monday, February 3, 2014 - 4:10 pm to 5:30 pm
Event Type: 

Location:  368A Heady Hall

Description:  Erica Myers (University of California/Berkeley) "Asymmetric Information in Residential Rental Markets:  Implications for the Energy Efficiency Gap"

Abstract:  This paper explores whether there are energy cost information asymmetries between landlords and tenants.  If tenants are uninformed about energy costs, landlords cannot capitalize energy efficiency investments into higher rents, leading to under-investment.  I exploit variation in energy costs in the form of relative heating fuel price changes in the northeastern United States where some apartment units heat with oil and some units heat with natural gas.  I develop a search model to describe the matching of landlords and tenants, and derive predictions about the incidence of relative fuel price changes, tenant turnover, and efficiency investments under both symmetric and asymmetric information.  My model predicts that, under symmetric full information, these outcomes will not differ depending on whether landlords or tenants pay for energy.  In contrast, under asymmetric information, the demand of uninformed tenants for units that heat with oil rather than gas will not shift when oil prices rise relative to gas prices. In a search model, this leads to different market outcomes when landlords, rather than tenants, pay for energy.  I find that the capitalization of energy prices into rents, turnover rates, and energy efficiency investments differ between the two payment regimes in ways that are consistent with asymmetric information.

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