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Economic Currents

Keep up to date with the latest UHERO news.

How Many Tourists is Too Many?

Honolulu Star Advertiser columnist, Lee Cataluna, recently asked: “How many tourists is too many tourists?”1 Apparently, she already knew the answer. To her, the 8.5 million plus tourists coming to Hawaii each year is way too many. She laments that nobody seems to be talking about limiting the number “…like maybe we’ve all become accustomed to being crowded. Like maybe we lost the fight.” Tourists used to stay in designated tourism zones like Waikiki, but now they are everywhere. Indeed, Hawaii Tourism Authority’s (HTA) 2015 study of vacation rental units “show that there were vacation rentals available in almost every zip code across the state.”2 We are receiving record number of tourists, but 2016 visitor spending per Hawaii resident is expected to fall 31% below its 1988 peak, after adjusting for inflation. Cataluna concluded: “It would be one thing if the explosion in tourism meant better living for everyone, nicer schools, cleaner parks, spiffy roads, but we’re getting all the tourism problems without the tourism benefits.”

Recent surveys show a growing percentage of Hawaii’s residents agree with Cataluna. Still, most people in Hawaii “strongly/somewhat agree that tourism has brought more benefits than problems.”3 HTA’s 2015 Resident Sentiment Study noted that 66% of Hawaii’s residents surveyed felt that way. But the percentage of residents who agree with the quote has been slipping in recent years. The percentage used to be in the 70s, going as far back as 1975. However, the percentage of respondents who perceive “Tourism has been ‘mostly positive’ for you and your family,” has slipped quite a bit from 60% in 1988 to 40% in 2015. The less positive responses at the individual/ family level might be explained by the fact that we are much less dependent on tourism than we were 25 to 30 years ago as tourism’s imprint on Hawaii’s economy—measured by its share of the state’s gross domestic product (GDP)--has declined. Tourism’s (direct) share of Hawaii’s gross domestic product peaked in 1988 at 24.7%4; by 2010 it had fallen to 12.3% (16.4% in 2010 if tourism’s indirect effects are included, and 16.7% in 2015).5

The surveys show a more disturbing trend; the majority (58%) of the respondents to HTA’s survey in 2015 agreed with the statement: “This island is being run for tourists at the expense of local people.” The first year this happened was in 2005. Yet, no follow-up studies have been done to find the reasons for the response and hence how to reverse the perception. If residents in growing numbers feel their wellbeing is not the state’s priority in developing tourism, how might that affect the “Aloha Spirit” which is so important to the industry? HTA conducts a resident sentiment study almost every year; I wonder how many people pay any attention to them.

Cataluna is not the first to inquire about Hawaii’s tourism carrying capacity. In the late 1960s and the entire decade of the 1970s, many in Hawaii felt that tourism was growing way too fast.6 The average annual rate of increase in visitor arrivals in Hawaii was 20% in the 1960s and nearly 9% in the 1970s. In response, the Legislature passed Act 133 (The Interim Tourism Policy Act) in 1976 which required the State to craft a 10-year strategic plan to chart the course of tourism development for the next ten years. It became part of Hawaii’s first (overall) State Plan in 1980. In 1980 Hawaii had 3.9 million visitor arrivals compared to less than 300,000 in 1960, and the number kept rising. As the count of visitors approached 7 million in 2000 the 2001 Legislature directed the Department of Business, Economic Development and Tourism (DBEDT) to conduct a tourism sustainability study “to begin looking to how Hawaii can better monitor and manage future growth in tourism.” The $1.2 million study was completed in 2006.7 By then the number of visitors had increased to 7.5 million. Except during the Great Recession (2007-2009), even more visitors would come. Hawaii Tourism Authority (HTA) announces the ever-increasing numbers of tourists with pride since HTA is charged with promoting tourist travel to Hawaii. With the Great Recession, attention has focused more on how to bring more tourists in, and not how to keep them out.

Even if we wanted to, Hawaii has few weapons available to control the inflow of visitors. We can raise taxes on tourism to make it more expensive to visit Hawaii; spend less on tourism promotion; tighten and enforce land use and zoning laws; or make Hawaii a less attractive place for tourists (and, unfortunately, for us as well!) Unlike in some countries, Hawaii cannot (on our own) limit the number of people who can travel to Hawaii. An entry tax, imposed in many countries, would not be legal here.

Indirectly, Cataluna recognizes that there is no magic number of tourists that’s best for Hawaii. Eight million visitors might be o.k. “if the explosion in tourism meant better living for everyone, nicer schools, cleaner parks, spiffy roads.” We might welcome more tourists if we can increase tourism’s benefits and reduce its problems. In my 2004 book, I discuss some of the tools that can be used to achieve this.8 However, the burden is on us collectively to get it done. Hawaii doesn’t have nice public schools, clean parks and public bathrooms, and spiffy roads not because tourism has failed us, but because we have, for too long, come to accept that nothing works here. Ainokea! A term (meaning “I don’t care”) that columnist David Shapiro once described as “our official state attitude—not only in popular culture but also in officialdom.”9 What state and local governments everywhere are supposed to do well (i.e. the core functions of government), they are not done well here. Limiting the number of tourists won’t change that.

Money, or lack of it, is frequently given as the main reason why things don’t get done in Hawaii or why it takes so long to get things done. The U.S. Census Bureau reports that in 2014 Hawaii’s state and local governments received $14.5 billion in general revenues, or $10,239 per resident.10 (That amounts to nearly $9,300 available to spend on every man, woman, child and tourist present in Hawaii on a given day.) Hawaii ranked 10th among the 50 states and the District of Columbia.11 As a group, Hawaii’s state and local governments are not poor when compared to other states. According to the Tax Foundation, Hawaii has one of the highest state-local tax burden as a percent of state income among the 50 states and the District of Columbia. Why aren’t we getting more for our tax dollars? Some residents who find the “price of paradise” too high choose to leave. Even as more tourists are pouring into Hawaii, there is a net (and growing) exodus of Hawaii residents to the mainland even though the local economy is humming along and structural unemployment is non-existent.12

Lee Cataluna reminds us that in developing tourism the wellbeing of residents must come first. What should be done about tourism’s problems? Rather than trying futilely to limit the number of tourists, a better strategy is to attack the problems directly. That requires leadership and effort.

- James Mak 

1Honolulu Star Advertiser, "Foundering canoe is full already, yet more get in,” January 11, 2017.

2Hawaii Tourism Authority, 2015 Visitor Plant Inventory.

3Hawaii Tourism Authority, 2015 HTA Resident Sentiment Study.

4Andrew Kato and James Mak, “Technical Progress in Transport and the Tourism Area Life Cycle,” in Clement A. Tisdell (ed.), Handbook of Tourism Economics: Analysis, New Applications and Case Studies, 2013.

5Eugene Tian, James Mak and PingSun Leung, “The Direct and Indirect Contributions of Tourism to Regional GDP: Hawaii” in Clement A. Tisdell (ed.), Handbook of Tourism Economics: Analysis, New Applications and Case Studies, 2013; also 2015 State of Hawaii Data Book.

6James Mak, Developing a Dream Destination: Tourism and Tourism Policy Planning in Hawaii, 2008.

7DBEDT, Planning for Sustainable Tourism, Project Summary Report, 2006.

8James Mak, Tourism and the Economy: Understanding the Economics of Tourism, 2004, Chapter 11.

9Honoluluadvertiser.com, “Why you should care about ‘ainokea,’” January 4, 2010.

10U.S. Census Bureau, State and Local Government Finances by Level of Government and by State: 2013-14.

11DBEDT, 2015 State of Hawaii Data Book, Table. 9.11.

12Honolulu Star Advertiser, “Census: Growing exodus of residents to mainland,” December 22, 2016.

Sherilyn Wee recognized as Outstanding Student of the Year by the U.S. Department of Transportation

Sherilyn Wee at the UTC Awards Banquet January 7 in Washington D.C. with keynote speaker, Dr. Beverly Scott, CEO of Beverly Scott and Associates.

UHERO congratulates Sherilyn Wee on receiving an Outstanding Student of the Year award, presented by the U.S. Department of Transportation (DOT). Sherilyn was recognized in Washington D.C. for her contribution to the transportation field through her research and leadership with the Electric Vehicle Transportation Center. For 26 years, the University Transportation Centers (UTC) Program, under the management of the U.S. DOT's Office of the Assistant Secretary for Research and Technology, has advanced U.S. technology and expertise in transportation through education, research, and technology transfer.

Sherilyn Wee is a postdoctoral researcher and former graduate research assistant at UHERO. She holds a Ph.D. in Economics from the University of Hawaii.

What will we get with Trump?

Posted January 12, 2017 | Categories: Hawaii's Economy, Blog

The unexpected election of Donald Trump has thrown a monkey wrench into forecasting the US and global economy. During the Presidential race, candidate Trump promised an array of dramatic policy changes, many of which could have dramatic economic impacts. The question now is which policies President Trump will in fact advance, which will be watered down or fall by the wayside, and whether Congress might have very different ideas.

President-elect Trump’s most controversial proposals could have profoundly negative economic effects. The biggest near-term concern is trade, where the President has broad latitude to act. He has threatened to impose large punitive tariffs on China and to “renegotiate” or abandon the North American Free Trade Agreement. Not only would unilateral US trade action be met with swift retaliation by trade partners, but it would be directly damaging to American firms, who now rely heavily on border-spanning global value chain production arrangements. Such actions would not return to the US lost manufacturing jobs, which have declined largely because of technological change. Instead, trade disruption would create losses across a broad swath of the American economy. In the near term, uncertainty about trade disruption could also damage investment in export-oriented sectors.

The proposed plans for massive tax cuts and infrastructure spending are more of a mixed bag. Attention to the nation’s decaying infrastructure is long overdue, but the timing of these actions is problematic. With the economy now close to full employment levels of activity, a dramatic fiscal stimulus could spark an acceleration of inflation. In response, the Fed would hike short-term interest rates, raising the risk of tipping the economy into recession. Trump’s policies as proposed would blow up the federal budget, leading to a higher government debt burden. Financial markets have moved in anticipation of at least some fiscal expansion, with equity markets rising on expected stronger demand and the likelihood of favored treatment for some industries, while bond markets have swooned under the fear of higher rates and higher inflation. It is unclear how far Congress will go in supporting the Trump fiscal agenda. It seems likely that only a more modest package of tax cuts and spending will get through, although the track record of fiscal restraint by past Republican Congresses is not good.

There are a number of areas where President-elect Trump’s proposals could have longer-term economic impacts, mostly on the negative side. The Trump agenda on immigration would be expensive and potentially very disruptive to labor markets and business operations. An overhaul of health care that did not adequately provide for the twenty million people who have obtained insurance under the Affordable Care Act would lead inevitably to a less healthy and less-productive labor force. Tax cuts that primarily benefit wealthier households would exacerbate existing problems of income inequality, class resentment, and political polarization. A poorer trade environment would hamper US and global growth. Stacked up against these fairly tangible risks is the less certain possibility that lower taxes and a reasoned approach to regulatory reform might spur efficiency gains.

At this point, there is simply a lot we do not know. It seems likely that many of the most extreme actions that President-elect Trump raised on the campaign trail will be moderated in their implementation. In some cases he has already telegraphed his intent to do so. At the same time, his mercurial nature makes it very difficult to know how he will proceed once in office.

For a forecaster, the question is how to build in assumptions about future policy when so much remains uncertain. For now, we have adjusted upward modestly our forecast for gross domestic product in 2017 to 2019, to reflect moderate fiscal stimulus. We have adjusted downward by a bit our forecast for subsequent years, reflecting our view that the changing environment for trade, immigration, and income inequality will have a persistent depressing effect on growth over the medium term. Expect us to make further adjustments to our US and global economic outlook as the policy picture becomes clearer in 2017.

- Byron Gangnes

Regulating Home-Share Rentals in Hawaii

Posted January 5, 2017 | Categories: Hawaii's Economy, Blog

Last year nearly one in three U.S. travelers stayed in home-based accommodation units compared to one in ten in 2011.1  A search by the New Orleans Planning Commission found more than 40 websites that facilitate short-term rentals ranging from single rooms in private homes to entire villas.2   The most conspicuous among them is Airbnb, self-described as a people-to-people platform founded in San Francisco in 2008. In 2016, Airbnb listed 3 million homes and hosted 70 million guests; by 2025, analysts predict the company’s share of U.S. hotel and short-term rentals will rise to 13% compared to 2.3% in 2016. Other well-known short term rental platforms include HomeAway (VRBO) and TripAdvisor (FlipKey).

Lanikai Park (East) by Ethan of Chapman

The sharp rise in home-share accommodations has caused great dismay among hoteliers and some city and state governments. The hotel industry has argued that home-share accommodations don’t play on a level playing field as hosts don’t pay local occupancy taxes or comply with regulations that hoteliers must. The complaints have been blunted somewhat by Airbnb agreeing in 2016 to collect occupancy and other taxes in over 200 jurisdictions around the world.

However, other concerns remain. They include the perceived negative impacts of illegal home-share rentals on local housing shortage, safety, and neighborhood life. (Rental discrimination has surfaced as another troubling issue.) Last November, Airbnb and Expedia’s HomeAway division were each fined $635,000 by the government of Barcelona, Spain for facilitating the rental of accommodation units that city officials said were unlicensed. The mayor of Barcelona said “We want people to visit us. But we also want this activity to be compatible with neighborhood life.” Airbnb said it will appeal.3  In October, 2016, Airbnb sued New York state’s attorney general, New York City and its mayor challenging a law that would levy fines as high as $7,500 for hosts who illegally list properties on a home-share rental platform. Airbnb argued that the law benefitted hotels at the expense of ordinary New Yorkers.4  However, in less than two months, Airbnb dropped its lawsuit as long as the city levies its fines on hosts and not Airbnb.5  Earlier, in June 2016, Airbnb sued San Francisco over a bill that required all Airbnb hosts to register with the city and would allow the city to fine Airbnb for each listing by an unregistered host.6  Airbnb argued that the city has violated the federal Communications Decency Act, which prohibits the company from being held accountable for website contents posted by its users. In July 2016, Hawaii Governor David Ige vetoed House Bill 1850—supported by both Airbnb and the State Department of Taxationthat would have allowed Airbnb and other home-share platforms to collect general excise and transient accommodations taxes on the state’s behalf. The bill would not require home-share companies to reveal host names or addresses. Governor Ige explained that signing the bill into law would encourage the illegal rental market “at a time when affordable rental housing is in such short supply in our communities and homelessness remains to be a critical concern statewide.”7  Airbnb public policy manager for the Northwest and Hawaii estimates that Airbnb’s Hawaii market has between 9,000 and 10,000 listings, which may or may not be available on any given day.8  The Hawaii Tourism Authority's study of "individually advertised units" in Hawaii in 2015 identified over 27,000  units advertised on Airbnb, VRBO, FlipKey and ClearStay. Since approximately 10,000 were advertised on more than one site, the study estimates that there were roughly 17,000 “actual” individually advertised units—and predominantly entire rather than shared units—in Hawaii in that year.9  Most of the units were very likely unlicensed.

Kailua Aerial by Peter French

A recent development in New Orleans offers hope that there may be a solution to the impasse between Governor Ige and Airbnb. A story in the New York Times suggests that New Orleans may become the “new model for Airbnb to work with cities.”10  A New Orleans City Planning Commission study of short term rentals in the city indicated that there are about 4,000 to 5,000 listings; Airbnb reported nearly 2,400 listing in 2016.

In New Orleans, Airbnb exhibited a more cooperative approach in negotiating with the city over regulations of short-term rentals. (The more conciliatory approach, subsequently stated in writing in Airbnb Public Policy Tool Chest, lays out policy options on how it will work with communities to enforce short-term rental rules.) As a result, new rules were passed by the New Orleans city council in early December.11  Key principles include:

  1.      1. Limit and reign in the expansive growth of short term rentals (STR) citywide;
  2.      2. Protect neighborhood character and minimize impacts to residential areas;
  3.      3. Enable economic opportunities;
  4.      4. Generate revenue for the City to pay for both enforcement and services;
  5.      5. Prioritize sensible enforcement.

  6. Among other things, the new rules state specifically:
  7.      1. Airbnb will agree to sign agreements with the City to collect taxes and fees.
  8.      2. Hosts must have permits (valid for one year), and Airbnb will submit registration applications to the City on the hosts behalf. Registration information would include: name, listing address, tax address, and contact information. Penalties for violations of permit rules include daily fines, property liens, revocation of permit and discontinuation of electric service.      
         3. Airbnb will also agree to share data with the City on the volume of short term rentals.
  9.      4. The City can contact the company to request identification of suspect listings.

The City also capped room rentals to 90 days per year when hosts rent out entire homes. City officials also correctly recognized that “[t]he key to establishing an effective regulatory regime for short term rentals is to have an effective and robust enforcement mechanism.” Too often enforcement is short-changed due to lack of a permanent funding source. New Orleans levies a $1 nightly fee (in addition to the local hotel occupancy tax) to fund enforcement.

While New Orleans and Hawaii are not exactly comparable—Airbnb has to deal with both the State and the counties in Hawaii—a new, more cooperative environment between the company and local governments everywhere bodes well for Hawaii to reach a compromise that could produce a win-win situation for all stakeholders. That said, Hawaii has a long way to go before the state and the counties achieve sensible regulation and enforcement of short-term rentals. Getting on-line platforms to agree to collect taxes and share host and rental information is a step in the right direction, but crafting sensible permitting and enforcement rules is arguably a more difficult challenge. At the start of its deliberative process, New Orleans recognized that there is a demand for home-based rentals (Airbnb’s customer base comprises largely of millennials). While admitting that such rentals can pose problems, short-term rentals can also present an economic opportunity. Thus, banning them is not a sensible option. Consequently, New Orleans developed a three-part permitting system with the most stringent regulations imposed on rentals in residential areas where they might cause the greatest disruptions to neighborhood life. By contrast, Hawaii seems to be focused on finding ways to prevent illegal rentals without first developing a vision of the role of home-share rentals in Hawaii that allows such rentals to grow. Honolulu put a moratorium on them in 1989 while the number of illegal rentals have soared. Hawaii Tourism Authority is about to contract another study of short-term rentals in Hawaii, but the study will do little to address Hawaii’s ineffective regulatory system if it ends only at data gathering.

-James Mak

1Travel Weekly Daily Bulletin, “Year in Review, 2016,” December 22, 2016.
2City Planning Commission, City of New Orleans, Short Term Rental Study, revised January 28, 2016.
3Travel Weekly Daily Bulletin, “Airbnb, HomeAway each fined by Barcelona officials,” November 29, 2016.
4Travel Weekly Daily Bulletin, “Airbnb drops lawsuit against NYC over new state law,” December 4, 2016; New York Times, “Airbnb stands to lose business in NYC after dropping lawsuit,” December 11, 2016.
5New York Times, “Airbnb Ends Fight With New York City Over Fines,” December 3, 2016.
6New York Times, “Airbnb in Disputes With New York and San Francisco,” June 28, 2016. 7Honolulu Star Advertiser, “Gov. Ige says ‘Airbnb bill’ hides illegal rentals,” July 13, 2016. 8Honolulu Star Advertiser, “Committee advances vacation rental tax measure,” February 11, 2016.
9Hawaii Tourism Authority, 2015 Visitor Plant Inventory.
10New York Times, “New Orleans Becomes New Model for Airbnb to Work With Cities,” December 7, 2016.
11City of New Orleans, Short Term Rental Zoning Amendments & Enforcement Regulations, December 1, 2016; also New York Times, “New Orleans Becomes New Model for Airbnb to Work With Cities,” December 7, 2016.

Revisiting the Energy Paradox: Do Quantity and Price of Energy Efficient Appliances Respond to Changes in Energy Prices and Interest Rates?

The WEER Student Blog Series features student reviews of presentations from UHERO's Workshop on Energy and Environmental Policy

Abstract: The notion of an energy efficiency gap posits that people under-invest in energy efficiency, since the present value of savings from more energy-efficient appliances, cars and other energy-consuming durable goods tends to far exceed their additional up-front cost. A considerable literature demonstrates this gap, and it has been a key factor underpinning energy-efficiency regulations. Critics contend that evidence backing an energy efficiency gap is mainly cross-sectional, and may be confounded by unobserved attributes of durable goods that are associated with energy efficiency. Taking an approach somewhat similar to recent work by Alcott and Wozny (2014), we use data on prices and quantities for a near population of sales of individual models of refrigerators, clothes washers, dishwashers and room air conditioners to revisit the question of whether an energy efficiency gap exists and how large it may be. Specifically, we consider whether changes in interest rates and electricity prices, which can significantly influence the present value of more efficient versus less efficient appliances, affect changes in sales and relative prices of more versus less efficient appliances. Model fixed effects control for unobserved attributes. We find that lower interest rates and higher electricity prices have driven sharp increases in sales of more energy efficient appliances, but that these changes tend to drive prices for more energy efficient appliances down, not up, with the exception of room air conditioners. The results suggest persistence of a very large energy efficiency gap. The results also suggest that economies of scale and imperfect competition likely complicate cost-benefit analysis of energy standards and other efficiency-related policies.​

 - Hyun-Gyu Kim and Michael Roberts, University of Hawaii Department of Economics and UHERO

Presentation slides available here

Review by Arlan Brucal

On February 12, 2016 the Department of Energy (DOE) proposed another energy efficiency standard (expressed in minimum lumen output per watt) for General Service Lamp (GSL), better known as light bulbs. Based on DOE’s calculation, the proposed energy conservation standards for GSLs would save households up to 16 percent of energy use relative to the no-new-standards case. This translates to total consumer savings ranging from $4.4 billion to $9.1 billion,1 compared to just $221 million estimated cost to manufacturers. This rule is expected to be issued by January 1, 2017.

If DOE’s information on cost savings is accurate, wouldn’t it be in consumers’ best interest to invest in more energy efficient lightbulbs (e.g. light emitting diode or LEDs)? Then how come incandescent halogens2 still represent roughly 50 percent of recent new bulb shipments to U.S. retailers?3 Does this mean that consumers are not making the most economically rational decision?  Do we have sufficient evidence to say that there exist market imperfections to merit the imposition of more stringent energy efficiency standards? Do consumers need government intervention to help them achieve greater cost savings (and significant reductions in carbon emissions as well)?  And if they do, is imposing standards the most efficient way to achieve that or it just more politically feasible? Does the so-called energy efficiency gap exist and how big is it?

To help revisit the issue on energy efficiency gap – the tendency of consumers to discount future energy savings against upfront cost, Hyun-Gyu Kim, a PhD candidate at the Department of Economics at UH Manoa, presents his work with Michael Roberts that measures the value of energy efficiency in major US appliances and verifies if the energy efficiency gap is indeed large and significant. Using the most recent data on US major appliances and an up-to-date empirical strategy, they find that the price of energy efficient products relative to non-energy efficient products was surprisingly decreasing.

The figure below illustrates the predicted change in the price of Energy Star-certified appliances relative to non-certified appliances using the estimated coefficients (the blue line) and the coefficient signifying consumers’ equal valuation between upfront cost and future energy savings (red dashed line). The green vertical line indicates the Energy-Star certification threshold in terms of annual electricity use (kWh). If consumers equally value the extra cost of buying Energy Star refrigerators and the present value of future energy savings, then the price of refrigerators should have increased by $152 (see top left panel). However, their estimates imply that the relative price may have actually decreased by $510. The same findings apply to clothes washers (top right panel) and dishwashers (bottom left panel), indicating a decline in the relative price of Energy Star-certified to non-certified appliances by $139 and $206, respectively. Room AC (bottom right panel) illustrates a different trend, indicating consumers’ undervaluation of future energy cost (i.e. the relative price should have increased by $90 as opposed to the observed price that remained relatively constant.

Figure 1. Estimated price change with $0.10 increase in electricity price.


Hyun-Gyu explained that this seemingly unusual relationship between the extra upfront cost and the present value of operating cost (PVOC) is likely driven by imperfections in the market. Manufacturers may be facing declining cost with respect to producing more energy-efficient products due to technological advance (e.g. increased automation) or competitive sourcing of components.4 If this is true, any shift in market demand for more energy-efficient products would translate into a drop in the price of these products relative to non-efficient ones.

Consumers may also exhibit more elastic demand due to continuous increases in electricity prices, and thus in PVOC. As PVOC increases, more consumers start looking at more energy efficient appliances. This makes demand shift and become flatter, making the relative price to fall (See figure below). 

Figure 2. Market demand for Energy Star certified products become more elastic

Note: The figure illustrates the changes in price and quantity when the demand for Energy Star (ES)-certified appliance becomes more elastic (D1 to D2). The y-axis of the graph indicates the price difference between ES and non-ES certified appliances, and the x-axis shows the sales of ES certified appliances. The black solid line denotes the (constant) marginal cost of an additional ES certified appliance in the market.

While the study did not explicitly answer the question of whether the energy efficiency gap is small or not, it puts more qualifications on the issue by demonstrating that the dynamics behind the energy efficiency gap is more complex than most of us think. Certainly, the market on energy-using durable goods is characterized by a number of market failures, including, among others, information asymmetry, externalities and imperfect competition. Whether consumers indeed undervalue future energy savings or just do not have that many options in the market to choose from or it is a combination both demand and supply factors, remains an empirical question.


Arlan Brucal is a postdoctoral researcher at the University of Hawai`i Economic Research Organization (UHERO). 

1The estimates are based on Net Present Value at 7-percent and 3-percent discount rate, respectively.

2 Incandescent halogens are the tweaked incandescent bulbs introduced to meet the first phase of the standards that went into effect between 2012 and 2014. These bulbs are less energy efficient than LEDs.

3 Extracted from 


4 Ellis, M., Jollands, N., Harrington, L., & Meier, A. (2007, June). Do energy efficient appliances cost more. In Proceedings of the ECEEE 2007 Conference, Summer Study, Panel (Vol. 6).

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