




































Ecology, Economy, and Society–the INSEE Journal 7(2): 11-28, July 2024 

THEMATIC ESSAY 
 

The Implicit Discount Rate, Information, and 
Investment in Energy-Efficient Appliances: A Review 
 

Monalisa Singh  and Chandra Sekhar Bahinipati    
 
Abstract: The implicit discount rate (IDR) is a decisive factor in household 
investment decisions, and its modification could promote investment in energy-
saving products. However, the discussion on households’ IDR in developing 
countries is limited. In this regard, the current study aims to provide a detailed 
review of the IDR across various investment decisions, factors affecting its value, 
and policy instruments that can influence its value. The study finds that the IDR 
value tends to be considerably higher than market interest rates. Information and 
behavioural failures lead to a high IDR and under-investment in energy efficiency, 
which may be addressed through energy labels. However, the effectiveness of 
energy labels in addressing barriers and making energy-efficiency information 
visible to households depends on their visual presentation, time frame (annual or 
lifetime), units of measurement (physical or monetary), and the content of the 
information. The review has relevance for policymaking aimed at increasing the 
adoption of energy-efficient options that reduce household carbon footprints and, 
in turn, contribute towards realizing the net-zero emissions target. 

Keywords: Implicit Discount Rate, Intertemporal choices, Investment Decision, 
Energy-efficient appliances, Information, Energy labels. 

1. INTRODUCTION 

The impetus to lower carbon dioxide (CO2) emissions and limit global 
average temperatures to 1.5°C has prompted policymakers to implement 
several climate change mitigation measures at the household level, one of 
which is promoting energy efficiency (IEA 2019). Energy efficiency aims to 
lower emissions from burning fossil fuels, electricity generation, and energy 

                                                 
 Ph.D. Scholar, Department of Humanities and Social Sciences, Indian Institute of 
Technology Tirupati, Yerpedu – 517619, India; hs19d001@iittp.ac.in  
 Associate Professor, Department of Humanities and Social Sciences, Indian Institute of 

Technology Tirupati, Yerpedu – 517619, India; csbahinipati@iittp.ac.in  

Copyright © Singh and Bahinipati 2024. Released under Creative Commons Attribution-
NonCommercial 4.0 International licence (CC BY-NC 4.0) by the author.  

Published by Indian Society for Ecological Economics (INSEE), c/o Institute of Economic 
Growth, University Enclave, North Campus, Delhi 110007.  

ISSN: 2581–6152 (print); 2581–6101 (web).  

DOI: https://doi.org/10.37773/ees.v7i2.1021  

mailto:hs19d001@iittp.ac.in
mailto:csbahinipati@iittp.ac.in
https://doi.org/10.37773/ees.v7i2.1021


 Ecology, Economy and Society–the INSEE Journal [12] 

 

use without compromising the welfare of society (IEA 2019). In this regard, 
energy-efficient appliances, in particular, offer considerable promise in 
reducing environmental externalities and internalities1 (Gerarden, Newell, 
and Stavins 2015). However, households do not appear to adopt them to 
the warranted extent despite net financial benefits (Gerarden, Newell, and 
Stavins 2015; Bahinipati, Sirohi, and Rao 2022). This is understood as an 
“energy efficiency gap”, i.e., the actual uptake of energy-efficient appliances 
falls short of the optimal level (Schleich et al. 2016). Several studies have 
been undertaken to investigate the potential causes of under-investment in 
energy-efficient appliances and have identified the use of a high implicit 
discount rate (IDR) as one of them (Hausman 1979; Train 1985; Jaffe and 
Stavins 1994; Gerarden, Newell, and Stavins 2015; Stadelmann 2017). IDR 
is used by an individual or a household to evaluate the trade-off between 
future energy savings and upfront costs when investing in an energy-saving 
appliance. Such an investment takes place when the present value of the 
product’s total benefits calculated using an IDR outweighs the additional 
upfront costs of the initial investment. In this way, IDR is a robust 
parameter that captures the non-financial factors and other barriers to 
investment decisions and, in the process, captures a household’s underlying 
preferences—for instance, risk, time preferences, and biases associated with 
intertemporal choices (Schleich et al. 2016).  

Households tend to assign a high IDR to energy-efficiency investments, 
requiring them to offer a high rate of return on their upfront costs, 
hindering their adoption. This issue has been discussed on international 
platforms since the 1970s. Standard economic theory assumes that 
individuals are rational and apply a common discount rate equal to the 
market interest rate when deciding to invest in energy efficiency that would 
reduce lifetime costs—the sum of the upfront cost and present value of 
operating costs (Howarth and Sanstad 1995). However, empirical studies 
reveal a wide gap between the assumed discount rate and the IDR applied 
by the individual or household to arrive at the investment decision. This is 
referred to as a “discounting gap.” A positive discounting gap leads to an 
energy-efficiency gap (Stadelmann 2017). A positive discounting gap 
renders energy-efficiency policies and programmes less effective than 
expected. It follows that identifying the factors that contribute to the IDR 
chosen by households can help in understanding how households value 
future energy savings while making decisions around energy efficiency. In 
turn, this can help in designing more effective energy policies.  

                                                 
1 The internalities are the welfare losses households cause themselves by undervaluing energy 
costs relative to purchase prices (Allcott et al. 2014).  



[13] Singh and Bahinipati 

 

A high IDR has been attributed to several factors in the literature, including 
informational failure, behavioural biases, and market barriers, among others 
(Min et al. 2014; Schleich et al. 2016; Park, Woo, and Jin 2022; Silvi and Rosa 
2021). Heinzle (2012) attributes the greatest impact to informational 
failures. To address this, full disclosure of pertinent information on the 
product using an energy label was suggested (Heinzle 2012). Several studies 
have examined the impact of different kinds of information on the uptake 
of energy-efficient appliances, such as energy consumption of the product 
(annual or lifetime, unitary or monetary, etc.), savings from the product, and 
CO2 emissions (Newell and Siikamäki 2014; Min et al. 2014). However, 
debates on the type, format, and time frame of information that is most 
likely to increase the purchase of energy-efficient appliances remain 
inconclusive as of date. Further, the existing literature does not pay 
adequate attention to decisions at the level of households, particularly in the 
context of developing countries. 

This survey reviews the literature on the IDR of household appliances in 
various countries to provide an understanding of households’ intertemporal 
decisions and the factors that influence them. The survey also reports the 
discount rate ranges observed in different sectors featuring intertemporal 
choices. It also reviews the factors—external and internal barriers—
affecting the IDR value. Among the factors, it focuses on the role of 
information provision with a specific emphasis on the roles that energy 
labels play in decisions involving the purchase of energy-efficient products. 
The final section discusses various forms of information provisions and 
their impacts on ‘discounting processes.’ 

2. EMPIRICAL FINDINGS ON THE IDR RANGE 

Discussions on IDRs peaked following the first oil crisis at the end of the 
1970s. Hausman (1979), using a discrete choice model, discovered that 
households in the US use a 25% annual discount rate while evaluating the 
trade-off between the annual operating and initial purchase costs of air 
conditioners. He observed that households suffer from a telescopic vision, 
where they fail to measure the net worth of energy-using durables correctly. 
After Hausman’s seminal work in 1979, a wide range of studies analysed 
consumers’ investment decisions and attempted to estimate the IDR for 
refrigerators, air conditioners, and lighting and heating systems in different 
countries around the world, especially in the US (see Table 1). 

Houston (1983), employing a choice model in his study on untried energy-
saving durables, observed that households use a discount rate of 22%, 
presumably because of the risks and losses involved in the investment. 
Ruderman,  Levine,  and  McMahon (1987)  assessed  that  the  IDR  varies  



 Ecology, Economy and Society–the INSEE Journal [14] 

 

Table 1. IDR Range for Household Appliances and Other Commodities 

S. 
No. 

Author Study 
year 

Country Product 
category 

Discount 
rate  

1 Hausman (1979) 1976–
1977 

United 
States 

Air 
conditioners 

29% (mean); 
5.1%–89% 

3 Houston (1983) 1979 United 
States 

Energy-
saving 
durables 

22% 
(mean); 
10%–50% 

4 Meier and Whittier 
(1983) 

1977–
1979 

United 
States 

Refrigerators 34%–58% 

5 Ruderman, Levine, and 
McMahon (1987) 

1972–
1980 

United 
States 

Gas and oil 
central space 
heaters; room 
and central air 
conditioners; 
electric and 
gas water 
heaters; 
refrigerators 
and freezers   

20%–800% 

6 Verboven (1999) 1991–
1994 

Belgium, 
France, 
and Italy  

Automobile 
sector 

5%–13% 

7 Newell and Siikamäki 
(2014) 

_ 
United 
States 

Water heaters 20% 
(mean) 

8 Min et al. (2014) 
_ 

United 
States 

Light bulbs 100%–
560% 

9 Allcott and Wozny 
(2014) 

1999–
2008 

United 
States 

Passenger 
vehicles 

15% 

10 Cohen, Glachant, and 
Söderberg (2017) 

2002–
2007 

United 
Kingdom 

Refrigerators 11% 

11 Wang and Daziano 
(2015) 

2013 United 
States 

Transportatio
n  

13.93% 

12 Matsumoto and 
Omata (2017) 

2013 Vietnam Air 
conditioners 

11.7%–
312% 

13 Damigos et al. (2021)  2017 Greece Refrigerators 10%–60% 

14 Lakić, Damigos, and 
Gubina (2021) 

2017 Slovenia Heating 
control 

40% 
(mean) 

15 Bansal et al. (2021) 2018 India Two-wheelers ≤ 10% 

16 Park, Woo, and Jin 
(2022) 

 South 
Korea 

Energy-
efficient 
appliances  

21.80%–
25.94% 

17 Carrasco-Garcés et al. 
(2021) 

2018 Chile Efficient 
woodstoves 

22%–
87.9% 

Source: Author’s compilation 



[15] Singh and Bahinipati 

 

between 17% and 243% for appliances such as refrigerators, water heaters, 
and furnaces. Train (1985) reviewed several papers in his comprehensive 
literature survey and noted that the IDR for refrigerators ranges between 
34% and 300%. However, recent studies by Cohen, Glachant, and 
Söderberg (2017) and Damigos et al. (2021) in the United Kingdom and 
Greece, respectively, estimate that refrigerators’ discount rate varies from 
10.5% to 60%, notably lower than the ranges mentioned above. Moreover, 
Park, Woo, and Jin (2022) find that IDRs vary from 21.8% to 25.9% for 
energy-efficient appliances in South Korea, implying an overestimation in 
the previous literature. According to Verboven (1999) and Cohen, 
Glachant, and Söderberg (2017), consumers’ awareness of product 
efficiency, and reduced information gaps through the mandatory 
implementation of energy labels and other information disclosures, could 
lead to lower estimates of IDR. 

For air conditioners, the IDR range varies from 3.2% (Goett 1984) to 312% 
(Matsumoto and Omata 2017). Using the conjoint analysis method, Min et 
al. (2014) estimate a discount rate of 100% to 560% for light bulbs in the 
US, insinuating that the discount rate for lower investment goods is 
significantly higher. On the other hand, Newell and Siikamäki (2014), using 
a multiple-price method, estimate an average IDR of 20% for water heating 
systems. Lakić, Damigos, and Gubina (2021) find a mean average 40% 
discount rate (see Table 1). Moreover, studies in the transport sector also 
observe a high variation in the IDR, further noting that the IDR is subject 
to market conditions in such sectors (Mau et al. 2008). In a detailed review 
of the transport and energy sectors, Haq and Weiss (2018) observe that the 
IDR ranges from a negative value2 of –259% to a higher range of 764%.  

The above text (and Table 1) demonstrates that a very high IDR is typically 
employed in various product categories. Aside from household appliances, 
studies in the transportation, automobile, and industrial sectors also observe 
that individuals place greater emphasis on initial investment costs than 
benefits (implied by the use of a high IDR). However, not many studies 
engage with the high IDR of energy-efficient household appliances in 
developing countries, which this survey addresses. 

 

 

                                                 
2 Negative discount rates imply that consumers invest in energy-saving technologies even 
when the energy savings realised may be insufficient to cover the cost of the initial purchase 
(Heinzle et al. 2012).  



 Ecology, Economy and Society–the INSEE Journal [16] 

 

3. FACTORS INFLUENCING THE IDR 

Identifying the factors that contribute to a high IDR is crucial for framing 
policies to steer resources towards energy-saving products with a significant 
impact. Towards this end, we have attempted to list all the factors from the 
energy-efficiency investments and behavioural economics literature that 
influence the purchase of energy-efficient products, with the premise that 
they affect IDR values. In fact, Jaffe and Stavins (1994, 806) state that “a 
high IDR is more of an expression of energy efficiency paradox”—whereby 
lesser adoption of energy-efficient products implies a higher IDR. 
Following the classification of Schleich et al. (2016) and Cattaneo (2019), we 
have divided the factors into two categories: (1) internal barriers and (2) 
external barriers. Figure 1 presents factors that belong to these two barriers. 
It also introduces an additional category of factors that influence the IDR, 
namely, irrational and rational factors.3 Using the two categories, we aim to 
clarify what factors may contribute to households making privately 
suboptimal or optimal purchase decisions.. 

3.1. External Barriers 

Gerarden, Newell, and Stavins (2015), Schleich et al. (2016), and Cattaneo 
(2019) have identified the external barriers that mostly originate from 
market and institutional settings. These studies conclude that households’ 
discounting behaviour is negatively affected when they face liquidity 
constraints due to a lack of access to financial markets or when they borrow 
money at exorbitant interest rates. Epper, Fehr-Duda, and Schubert (2011) 
estimate that discount rates for liquidity-constrained customers are 40% 
greater than those for unconstrained customers in a temporal financial 
trade-off. It was also observed that technological risks associated with 
uncertainty regarding actual versus planned energy savings, fluctuating fuel 
prices, and the irreversibility of investments contribute to a high IDR 
(Schleich et al. 2016; Cattaneo 2019). In addition, inefficient functioning of 
capital markets, high-risk premiums, lack of capital, high debt leverage, and

                                                 
3 Irrational factors cause households to make purchase decisions that do not maximize their 
experience utility or that are in their best self-interest. Behavioural decisions and the settings 
of purchase decisions contribute to such suboptimal outcomes. These factors result in a high 
IDR and cause households to buy appliances with a lower efficiency. On the other side, a 
high IDR is also caused by rational factors, but it does not indicate privately non-optimal 
and irrational behaviours. Households might, for example, deliberately use discount rates 
that are higher than risk-adjusted market interest rates because of their time and risk 
preferences. Although these behaviours result in a high IDR, they maximize their private 
utility (Stadelmann 2017). 



Ecology, Economy, and Society–the INSEE Journal 7(2): 11-28, July 2024 

 

Figure 1: An Overview of the Factors Influencing the IDR 

political turmoil in developing nations lead to a high IDR (Hausman 1979; 
Train 1985; Sutherland 2003; Schleich et al. 2016).  
It was observed that the benefits of energy-efficient investments are not 
fully revealed to households because of multiple information asymmetries 
(Giraudet 2020). Adverse selection and principal-agent problems are the 
two constituents of such asymmetries. The adverse selection problem 
appears when the seller of the product fails to deliver credible information 
(e.g., regarding the efficiency of the product and its advantages) to buyers 

Factors 
influencing IDR 

External 
barriers 

Internal 
barriers 

Irrational 
factors 

Rational 
factors  
 

Irrational 
factors  
 

Rational 
inattention 

Bounded 
rationality 

Behavioural 
biases 

Reference-
dependent 
preference 

Hyperbolic 
time 
discounting 
 

Risk 
preferences  

Pro-environmental 
preferences  

Time 

preferences 

Adverse 
selection, 
principal 
agent 
problem, 
incomplete 
and imperfect 
information 

Financial and 
technological 
risks 

Liquidity 
constraints 
and capital 
market 
failures 

Source: Author’s compilation 



 Ecology, Economy and Society–the INSEE Journal [18] 

 

(Gillingham and Palmer 2014). As a result, this may lead to the use of a high 
IDR, and the consumer selects less energy-efficient appliances. On the 
other hand, the principal-agent problem arises between the landlord and 
tenants. Landlords intentionally invest in inefficient products because it is 
the tenants who will realise the efficient product’s benefits, while they will 
remain uncompensated. Empirical findings reveal that only owner-occupied 
houses are equipped with energy-efficient appliances and insulation 
measures (Gillingham, Newell, and Palmer 2009; Ameli and Brandt 2015). 
Bhattacharya and Copper (2010) also find that information and agency 
problems are among the primary barriers to energy-efficient appliance 
adoption in India. 

Symmetric information problems,1 such as imperfect and incomplete 
information, have been identified as the primary impediments to 
investment in energy-efficient products, due to the action of a high IDR 
(Newell and Siikamäki 2014; Giraudet 2020). Examples include uncertainty 
about energy prices and climate conditions, infrequent energy consumption 
billing, lack of periodic energy audits, and insufficient or partial disclosure 
of product attributes. Usually, households lack knowledge of the actual 
energy usage of different appliances and are incapable of mentally 
computing the annual/lifetime monetary expenses of appliances (Giraudet 
2020). Given this, when information on the costs and savings associated 
with alternatives are insufficient, asymmetric, or challenging to obtain at the 
time of purchase, energy efficiency becomes an unobservable characteristic 
for households when purchasing appliances. Further, information failure 
accentuates several behavioural aspects such as bounded rationality, 
inattention, and myopia, and in the process, heightens uncertainty about the 
product’s benefits. For example, Min et al. (2019) observed that the absence 
of annual operating cost information makes the product’s efficiency 
unattractive and caused an IDR of 560% for CFL (compact fluorescent 
lamp) bulbs. In short, information failure, cognitive restrictions, and myopia 
lead consumers to overlook usage cost differences and excessively focus on 
upfront costs, reflecting a higher IDR (Sutherland 2003; Cohen, Glachant, 
and Söderberg 2017; Stadelmann 2017). 

 

 

                                                 
1 Giraduet (2018) mentions that incomplete and imperfect information fall under symmetric 
information; however, these problems are often mistaken for information asymmetries. 
Adverse selection or principal-agent problems, on the other hand, are examples of 
information asymmetry. 



[19] Singh and Bahinipati 

 

3.2. Internal Barriers 

Internal barriers to decisions to invest in energy-efficient products include 
behavioural biases and individual preferences. First, energy-efficiency 
investment decisions rest on the “pure time preferences” of households 
(Schleich et al. 2016). The time preferences of households manifest their 
innate preferences and tell us how they value the future in relation to the 
present (Epper, Fehr-Duda, and Schubert 2011). According to rational 
choice theory, the time preferences of households are captured by the 
discount rate of individuals, which is a positive constant number and 
measures their extent of patience (or impatience). This implies that patient 
individuals will use a lower IDR and place a higher value on future benefits. 
Empirical studies by Newell and Siikamäki (2014) and Liebermann and 
Ungar (1997) find that households with patience are more likely to wait for 
future benefits, use a lower IDR, and invest in energy-efficient water 
heaters. 

However, energy-efficient appliances are non-liquid assets that involve the 
risk of losing money if additional investment costs are not repaid from 
future energy savings. Further, they are subject to uncertainty due to a lack 
of knowledge about future energy prices, which tends to drive impatience 
regarding future benefits (Chernoff 1983; Hassett and Metcalf 1993). 
Therefore, an impatient household will have a time preference and might 
purchase an energy-efficient appliance only if offered a high premium. A 
high premium is nothing but a reflection of the use of a high IDR. Thus, 
high time preferences lead to a higher IDR. In such cases, households can 
be provided direct incentives to change their cost-effectiveness calculations 
in favour of energy-efficient appliances.  

Since energy-efficient appliances are non-liquid assets and carry a risk of 
losing money if investments are not repaid by future energy savings 
(Hassett and Metcalf 1993), such uncertainty surrounding potential energy 
cost savings increases the risk quotient of energy-efficient investments. As a 
result, risk-averse individuals have a lower likelihood of spending money on 
energy-saving appliances (Fischbacher, Schudy, and Teyssier 2021). Studies 
by Qiu, Colson, and Grebitus (2014) and He et al. (2019) also confirm that 
risk-aversive households and farmers do not prefer buying energy-efficient 
appliances. This implies that greater risk aversion leads to a high IDR, 
affecting investments in energy-efficient products. However, there has been 
no specific research on the relationship between the IDR and risk 
aversiveness for energy-efficient appliances (Schleich et al. 2016). Only one 
empirical study (Qiu, Wang, and Wang 2015) focuses on industries and 
shows that risk-aversive firms apply a higher discount rate of about 42% for 
energy-efficiency projects. A high IDR may become less pronounced in 



 Ecology, Economy and Society–the INSEE Journal [20] 

 

purchasing decisions if households demonstrate environmental concerns, 
the literature suggests. An environmentally conscious family attaches more 
value to environmental improvements due to energy savings, which 
positively affects energy-efficient investments and steers energy-saving 
habits (Schleich et al. 2016). This implies that such households favour 
outcomes advantageous to the environment over immediate monetary 
benefits in a trade-off between high upfront costs and addressing 
environmental concerns. Thus, a pro-environmental preference positively 
influences the IDR and may lead to a lower IDR. 

The value of the IDR and the decision to invest in energy-efficient products 
are also influenced by several behavioural matters such as bounded 
rationality, rational inattention, the status quo bias, and the loss aversion 
bias. Bounded rationality refers to when a household fails to process data 
and undertake calculations due to their limited cognitive capacity and time, 
resulting in less optimal choices. As a result, they rely on mental shortcuts 
or heuristics to simplify their calculation process (Simon 1990; see Biswal, 
Singh and Bahinipati 2022). For example, households, due to their limited 
cognitive capacity, prioritize the purchasing price rather than calculating 
annual operating costs, or total lifetime costs, when buying energy-efficient 
appliances and impose internalities on themselves (Gillingham and Palmer 
2014; Gerarden, Newell, and Stavins 2015). Even when the opportunity 
costs of time and effort to conduct a cost-benefit analysis of appliances 
become high, households make decisions based on the salient upfront costs 
of appliances while ‘rationally’ ignoring shrouded price attributes, i.e., the 
higher running energy costs (Stadelmann 2017). This is referred to as a 
rational inattention problem, where households may prefer to act or remain 
uninformed rather than incur the costs of becoming perfectly informed 
(Sallee 2014). Due to these biases, households weigh purchase costs more 
than future benefits, implying the use of a high IDR. 

Information complexity also leads to biases such as the status quo bias and 
loss aversion, reducing households’ ability to compare alternatives (efficient 
versus inefficient) and making choices more unpredictable (Samuelson and 
Zeckhauser 1988; Heutel 2019; He et al. 2019). In prospect theory, 
Kahneman and Tversky (1979) noted that individuals do not evaluate 
outcomes in absolute terms but relative to a point of reference, which they 
termed ‘reference dependence preference.’ This means that individuals give 
more weight to losses than gains—also known as the loss aversion 
phenomenon—where “losses loom larger than gains” (see Biswal, Singh 
and Bahinipati 2022). Concerning energy-efficient appliances, the possibility 
of a loss—due to uncertainty regarding future electricity prices and the 
actual improved performance of energy-efficient products—compels 



[21] Singh and Bahinipati 

 

households to weigh negative payoffs heavily and prevents them from 
investing in efficient appliances notwithstanding the positive net benefits 
(Gillingham and Palmer 2014; Heutel 2019). A large-scale study by Schleich 
et al. (2016) in European countries supports the hypothesis that loss-
aversive individuals with experience using energy-inefficient appliances are 
less inclined to adopt energy-efficient appliances because of possible losses. 
Thus, reference-dependent preferences lead to the problem of loss 
aversion, which causes households to underestimate future savings from 
efficient appliances by using a high IDR (Ortoleva 2010; Schleich et al. 
2016).  

Empirical findings reveal that ‘present-biased individuals’ assign more 
weight to the payoff that is closer in time than what will incur in the distant 
future, i.e., they use a higher IDR and refrain from purchasing energy-
efficient refrigerators (Allcott and Wozny 2014; Cohen, Glachant, and 
Söderberg 2017). In other words, the difference between the initial price 
(immediate costs) of efficient and less efficient/inefficient products is 
weighed more heavily than the difference in future energy operating costs 
(delayed benefits). This is also called ‘hyperbolic discounting,’ where the 
discount rate declines sharply over time (Stadelmann 2017). An empirical 
study by Fuerst and Singh (2018) on investment in energy-efficient 
appliances in India confirms that patient and less present-biased individuals 
are more likely to invest in them. This implies that the time preferences of 
households and the IDR are crucial in investment decisions pertaining to 
energy-efficient products. This needs further research and discussion. 

 

4. ROLE OF INFORMATION IN REDUCING THE ENERGY-
EFFICIENCY GAP 

Information instruments are widely popular and used across countries to 
overcome informational and behavioural barriers. One such information 
instrument is energy labelling, which communicates information graphically 
using linear scales, bars, dials, or stars. It facilitates product comparisons 
and reduces transaction costs and uncertainties so that households can 
understand products’ benefits (Stadelmann and Schubert 2018). Many 
studies have examined the effect of providing physical versus monetary 
units. In contrast, others have looked at the impact of providing 
information at different time scales when communicating running operating 
costs information (for example, monthly, annual, five-year, ten-year, and 
lifecycle costs) for energy-efficient appliances adoption (Heinzle 2012; Min 
et al. 2014; Newell and Siikamäki 2014; Jain, Rao, and Patwardhan 2018; 
Stadelmann and Schubert 2018; Damigos et al. 2021). These studies 



 Ecology, Economy and Society–the INSEE Journal [22] 

 

observed that monetary information increases consumers’ willingness to 
pay, i.e., it supports higher purchase prices and addresses the over-
discounting problem. However, regarding time length, some studies favour 
annual over lifetime operating costs (Jain, Rao, and Patwardhan 2018; 
Damigos et al. 2021). Nevertheless, the most effective time frame for 
disclosing information is still being explored. 

Further, empirical evidence indicates that the nature of information and the 
communication context enhances the impact of information provision 

(Delmas, Montes‐Sancho, and Shimshack 2010). Information presented in 
terms of the opportunity costs of choosing less energy-efficient appliances, 
and listing a range of expected energy savings percentages, can significantly 
reduce the over-discounting problem and lessen the deterring effects of 
uncertainties on risk-aversive and present-biased consumers (Qiu, Colson, 
and Grebitus 2014; Silvi and Rosa 2021). Moreover, social comparison–
based and environment-related information are also found to be more 
promising in increasing energy-efficient appliance investments than 
technical information or encouraging savings (Ferraro and Price 2013). It 
follows that disclosure of such information through labels, along with 
energy costs information, influences households’ decision to make energy-
efficient investments.  

As it is well known, in intertemporal choices, information availability and 
how information is conveyed (through appropriate framing) influence 
individuals’ discount rates for future costs and benefits (Loewenstein and 
Thaler 1989). In this regard, improving how information is represented on 
labels will make electricity consumption information more visible to 
consumers and reduce their cognitive load. Additional information is 
required to address various biases and promote energy-efficient appliance 
purchases. However, research in this regard has received little scholarly 
attention in developing countries. 

 

5. CONCLUSION 

Understanding household preferences and purchasing decisions is vital in 
encouraging energy-efficient appliance investments. Many studies on the 
energy-efficiency gap find that households underestimate the future energy 
savings from energy-efficient appliances and make their purchasing 
decisions based on mere price comparisons. This indicates how households 
implicitly apply a high IDR in their purchasing decisions. The literature 
review demonstrates the high IDR applied by decision-makers for various 
product categories in different countries, which is significantly greater than 



[23] Singh and Bahinipati 

 

the market interest rate. However, a close look at the literature on IDR 
reveals that estimations of IDR are mainly confined to developed nations. 
Only a limited discussion has taken place regarding how households in 
developing countries value the future benefits of energy-efficient 
investments. This survey covered multiple facets of the IDR. By assessing 
the factors affecting the value of the IDR, it finds that information failure 
significantly affects households’ valuations of energy savings from energy-
efficient appliances. It also covered the influence of behavioural factors like 
present-biased preferences, inattention, bounded rationality, and myopia, 
which make it difficult for households to compare the prices and operating 
costs of efficient and inefficient appliances.  

The literature reveals that instruments such as energy labels that convey 
relevant information regarding energy consumption and the product’s 
efficiency may encourage households to decide in favour of 
optimal choices. The literature review related to information provision for 
various household appliances shows that monetary annual energy costs 
information is more effective in driving purchases. Additionally, it finds that 
a better visual presentation of information simplifies household decision-
making and promotes the purchase of energy-efficient appliances. It is, 
however, unrealistic to believe that informational instruments will alone 
eliminate the problem of limited attention, myopia, and short-sightedness. 
Therefore, it is equally important that policymakers consider the intuitive 
decision-making of individuals and design incentives such as energy taxes 
and subsidies along with information provision to address the high IDR 
problem and increase the adoption of energy-efficient appliances. 

Ethics Statement: This statement is not applicable to us as it is review 
paper and we have not taken any ethical approvals to write this manuscript. 

Data Availability Statement: This is a review paper. Information was 
collected from the previous published studies. 

Conflict of Interest Statement: No potential conflict of interest was 
reported by the author. 

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