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Economic Currents

Keep up to date with the latest UHERO news.

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).

UHERO wins 2016 Polzin Prize for Best Paper at AUBER Fall Conference

Posted November 20, 2016 | Categories: Blog

UHERO is proud to announce that  "Forecasting in a Mixed Up World: Nowcasting Hawaii Tourism" by Ashley Hirashima, James Jones, Carl Bonham and Peter Fuleky was awarded the Polzin Prize for Best Paper at the 2016 AUBER fall conference!

We evaluate the short term forecasting performance of methods that systematically incorporate high frequency information via covariates. Our study provides a thorough introduction of these methods. We highlight the distinguishing features and limitations of each tool and evaluate their forecasting performance in two tourism-specific applications.  Our results indicate that compared to the exclusive use of low frequency aggregates, including timely intra-period data in the forecasting process results in significant gains in predictive accuracy. Anticipating growing popularity of these techniques among empirical analysts, we present practical implementation guidelines to facilitate their adoption.

The AUBER Polzin Prize is named for Paul Polzin, emeritus director of the University of Montana Bureau of Business and Economic Research and was offered for the first time in 2016. AUBER is a professional association of business and economic research centers in public and private universities. Founded in 1947, it strives to unite its members in the shared purpose of advancing economic research, promoting the collection and dissemination of economic information, facilitating the improvement in the services of its members, and demonstrating the importance of the economic development, outreach and research roles of its members. The annual AUBER conference was held in Honolulu in 2012.

working paper

Can Cheap Oil Hurt Net Importers? Evidence from the Philippine Economy

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

Abstract:  Conventional wisdom suggests that oil price increases have a negative effect on the output of oil-importing countries. This is grounded in the experience of the US between 1940s and late 1980s where recessions are generally preceded by oil price increases. In this paper, we evaluate the impact of oil price shocks on the Philippines--– a developing country and a net oil-importing economy. Following Kilian's (2008) structural decomposition of real oil price change, we find indications that the recent oil price decline may have lowered the Philippine economy's output growth, potentially due to the economy's reliance on remittances from abroad and the export market.

- Arlan Brucal and Michael Abrigo, University of Hawaii Economic Research Organization (UHERO), East West Center, September 12, 2016.

Presentation slides available here

Review by Trevor Fitzpatrick

Since the beginning of 2016, oil prices have hovered around $30 to $50 a barrel. These current prices are about a third of the 2008 peak crude oil price of $145 per barrel. The recent significant drop in oil prices are the greatest we have seen since the 1980s. Like many other price fluctuations in goods, the recent drop in oil prices have benefited some more than others. Conventional wisdom suggests that low oil prices will benefit oil consumers while oil exporters will suffer. As the case may be, the effect of low oil prices is not that simple.

On September 12, Arlan Brucal highlighted the importance of looking at the causes of recent oil price changes, and their direct and indirect effect to an economy through international trade and factor mobility. Focusing on the Philippine’s economy as a test case, Arlan finds an indication that the recent oil price drop may have slowed down the growth of the country’s gross domestic product (GDP) by 5.5 percent. This seemingly counterintuitive result is largely due to the fact that the Philippine economy is heavily reliant on service exports, a component of the national output that suffered heavily from the recent oil price drop. Demand for crude oil has not recovered from the 2014 slump, and still cripples oil-exporting economies, which host most of the overseas Filipino workers (OFWs). Over the past decade, remittances received by the Philippines from abroad account for about 15% of the country’s GDP. The share of remittances to Philippines’ total output is significantly higher than India and China – the two biggest recipients of remittances in 2014 – and much higher than world averages.

Arlan and Mike’s study employs Kilian’s (2008) vector autoregression (VAR), which decomposes oil price shocks into supply shocks, aggregate demand shocks and oil-specific demand shocks. Supply shocks are unanticipated changes in the global crude oil supply. These supply shocks could emanate from exogenous geopolitical conflicts, discovery or new resources, or technology (i.e. fracking). Aggregate demand shocks are unanticipated changes in real economic activity, which includes economic booms in China or economic recessions that reduce the demand for industrial commodities including crude oil. Oil-specific demand shocks are changes in the demand for crude oil that are not related to aggregate demand shocks. These shocks include precautionary demand shocks associated with the future oil demand-supply conditions. An example of which would be a sudden drop in the price of oil because of the looming conflict in the Persian Gulf in the early 2000s. The study finds indications that the recent drop in oil prices are driven by a combination of both aggregate demand and oil-specific demand shocks. These findings are in contrast to the popular view that cheap oil is due to an oil oversupply caused by the surge in US oil production (Figure 1). 

Figure 1. Historical Decomposition of World Crude Oil Price Changes

Note: Each bar reflects the relative contribution of each estimated structural shock to oil price changes for the period 1976-2015.

Source: Brucal and Abrigo (2016)


While the results appear to be quite convincing, their external validity is yet to be established. Indonesia presents a potentially good comparison example for this study. Indonesia and the Philippines share many commonalities: multicultural/ethnic, developing countries, nations that consists of many islands, exportation of laborers to many oil producing countries, etc. Does Indonesia have a similar pattern of remittances from overseas workers in oil producing countries, and do cheap oil prices negatively affect these remittances to Indonesia like they do in the Philippines? The fact that Indonesia is an exporter of oil could make the comparison difficult, but there are recent arguments and evidence that Indonesia’s oil production is starting to decline and that it is starting to consume more oil than it is producing. While Indonesia presents one interesting case to compare the Philippines with, further research could be expanded to include a number of countries with a wide range of dependence on remittances, which might help to establish if remittances is indeed a major mechanism.

Additionally, it was pointed out that the Filipino diaspora in the US was not accounted for, or that the US-Filipino diaspora did not make up a noticeable population and source of remittance as some the other overseas Filipino populations. One would assume that the US Filipino diaspora would still be a large population. Taking into account that cheap oil prices have been associated with economic booms in the US, we could possibly hypothesize that remittances from Filipinos in the US would increase. Could this US-Filipino remittance recover the losses felt from the loss of petro-dollars and remittances from Filipinos that work in oil producing countries? This could be another aspect to consider.

The negative impacts that Arlan’s findings could have are possibly reflected in the lack of sophistication of the Philippines workforce. Continued export of unskilled laborers to oil producing countries and the reliance on their income partly being shifted back to the Philippines is potentially holding its economy back. However, if the Philippines is labor abundant and capital poor, the Philippines may be better off by exporting workers to labor deprived countries. Perhaps further development of the workforce could help decrease some of the reliance on service jobs in oil producing countries. Further education and development in human capital can certainly help. The Philippines could also encourage more foreign direct investments as well although negative impacts particularly on natural environment would have to be monitored.

Arlan and Mike’s study is part of a bigger project that studies the impact of oil price-related shocks to developing countries. Most of the current literature has focused on the more advanced economies of the world like the US. Hopefully, Arlan and Mike’s study will help fill the void in the literature on the impacts of oil prices on developing countries. Future studies building upon what Arlan and Mike have done are highly anticipated.

 Trevor Fitzpatrick is a graduate student at the Department of Urban and Regional Planning (DURP) – University of Hawaii at Manoa

Informing Water Policy in Hawaii with Transformative Interdisciplinary Research: UHERO’s Role in ʻIke Wai

UHERO's Project Environment will be leading the economic analysis for a new National Science Foundation project addressing critical gaps in the understanding of Hawaii’s fresh water supply that limit decision making, planning and crisis responses. ‘Ike Wai (from the Hawaiian ‘ike, (knowledge), and wai, (water) spans geophysics, microbiology, cyberinfrastructure, data modeling, indigenous knowledge and economics and connects university scientists to state and federal agencies and community groups.

Diversity in volcano age, eruption types, structural history, and hydrological features generate a complex subsurface water system that provides most of Hawaii’s potable water supply. While many hydrological studies have been carried out in Hawaii, relatively little is known about the exact structure of the many groundwater (GW) aquifers that are present throughout the state. Existing models are able to approximate the structure, but the accuracy of predicted water flows and sustainable yields for Hawaiian watersheds is limited by the availability of existing data, which is used to calibrate the models. Accordingly, ʻIke Wai will use new technology to measure the volume and interconnectivity of aquifers within Hawaiian volcanoes. Geophysical imaging will provide new high-resolution 3D maps of geologic structures. Real-time monitoring will support analysis of aquifer volume and hydraulic conductivity estimations. Flow and aquifer connectivity measurements will integrate three approaches: submarine GW Discharge (SGD) analysis, geochemistry and the innovative use of microbial diversity as a GW tracer.

Data and outputs from ʻIke Wai will provide decision-making tools to address challenges related to water availability and sustainability. Recent research on the West Hawaii coast has shown that we do not fully understand the size, flow rates, and boundaries of our groundwater aquifers. Without a clear understanding of how much water is available, we cannot properly plan future water use and management. There is currently significant debate over whether there is enough water to meet planned development while ensuring the biological and ecological integrity of surrounding nearshore habitats. ʻIke Wai will provide crucial geophysical data that will allow us to assess how much water is available to support both humans and nearshore environments.

Once we know the size, volume, and flow rates of groundwater aquifers, we can match these water supply estimates with current and projected demands for water. These demands come in the form of human demand — for domestic, commercial, agricultural, and municipal use — as well as biological and ecological demands — for example the dependency of nearshore organisms on freshwater discharge to the ocean, which is driven by the size and flow rate of up-gradient aquifers. The research from ʻIke Wai will help resource managers, policy makers, and the general public understand how scarce groundwater is in these areas, and how these resources should be priced, pumped, and managed to achieve the objectives that will be determined as part of our stakeholder engagement process. These objectives could be related to development, ecological integrity, and/or cultural integrity — we won’t know exactly what we are aiming for until we engage the stakeholders in our research.

The ʻIke Wai Initiative will give us a better sense of where the water is, how much is there, how much and where we can pump for what uses, and how we should best manage (price, restrict, require permits for, etc.) this resource. Stakeholder engagement and policy evaluation are also key components of the project, so we believe that the research results will not only be transformative from a scientific perspective but also useful for planning and management. Providing user friendly access to data and research results is an important objective of the project. Software engineers will work collaboratively with other members of the research team and stakeholders to create web and mobile applications for data dissemination, interaction and visualization.

For more information on the project, visit EPSCoR.

--Kimberly Burnett and Christopher Wada

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