Doctoral Dissertations

Date of Award

3-1981

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Agricultural Economics

Major Professor

Thomas H. Klindt

Committee Members

David L. Kaserman, Joe A. Martin, Ben R. McManus

Abstract

Rising energy prices provide an economic incentive to substitute capital for fuel in production processes, where the extent of substitution that is feasible is constrained by existing technologies. In the residential sector, such capital-fuel substitution depends upon the willingness of builders and homeowners to invest in the durable goods that make the house energy conserving. Since these durable goods become permanently attached to the dwelling unit and since ownership is likely to change over the lifetime of the house, the incentive to carry out an investment in energy conservation depends critically upon the efficiency of the housing market in capitalizing the financial benefits of future fuel savings.

In this study of the Knoxville housing market during 1978, an hedonic price equation of the form P = f(U, X) was estimated, where P is the sale price of the house, U is the annual utility (fuel) bill, and X is a vector of structural, locational, and neighborhood attributes. The estimated hedonic price index reveals that, holding other influences constant, the marginal effect of a one-dollar savings in the annual fuel bill is to increase the sale price of the house by approximately $21. Estimates of implicit market discount rates, under various assumptions about fuel escalation rates and remaining lifetimes of the houses, indicate that the housing market performed in a manner consistent with a social discount rate of about 10 percent. The results of the study do not show whether or not investment in energy conservation is proceeding at a socially optimum rate, only that the housing market, in this location and period of time, did operate efficiently in capitalizing the investments.

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