Investment in energy-efficient houses: An estimate of discount rates implicit in new home construction practices

Data on residential construction practices in 1975–1976, together with climatic data, construction costs and fuel costs, are used to calculate discount rates implicit in homeowner's decisions to invest in energy-saving measures in new homes. This process is repeated for ten cities for three heating fuels in each city. The resulting discount rates are significantly higher than market rates of interest, suggesting market imperfections which reduce the level of investment in energy efficiency below the socially optimal level.