Estimating customer utility of energy efficiency standards for refrigerators

Abstract

A frequent argument against efficiency standards is that they prohibit products that representoptimal choices for customers and thus lead to reduced customer utility. In this paper wepropose and test a method to estimate such losses. Conjoint analysis is used to estimate utilityfunctions for individuals that have recently bought a refrigerator. The utility functions areused to calculate the individuals’ utility of all the refrigerators available in the market. Nextthe method is used to estimate losses due to energy efficiency standards that remove productsfrom the market. The method is found to give accurate estimates that are consistent withother data on customer choices. Contrary to previous claims, we find that efficiencystandards can lead to increased utility for the average customer. This is possible becausecustomers do not make perfect choices in the first place.