DO-IT-YOURSELF AND ENERGY CONSERVATION PETER C. MAYER*

Buyer-installation of household equipment appears to reduce the inclination to pur- chase energy-saving equipment. The finding demonstrates the need for special promo- tional +rt to sell energy-saving equipment to the do-it-yourself market. The finding may proziide a new explanation for the inverse relation between fimily income and purchase qf enugy-saving investment.

I. INTRODUCTION

Families that install their own house- hold equipment may be less inclined to purchase energy-saving equipment than are families that pay for installation. This empirical finding is predictable through sensible and transparent reasoning. The discovery has implications for promoting energy efficiency and may explain previ- ous empirical findings.

Buyer installation of energy saving equipment raises the perceived and, at times, the actual cost of the equipment rel- ative to the cost of standard equipment. Particularly if the energy-saving equip- ment has an unfamiliar name, buyer in- stallation may appear to require that the buyer acquire new skills and tools. In the case of the heat-pump water heater used in the survey, the requirement is genuine.

II. SURVEY

Survey subjects come from three sources: 54 from employees entering their shift at the Guam Mass Transit Authority, nine from a management class of the Uni- versity of Maryland overseas program,

*Senior Economist, Guam Power Authority. The au- thor conducted the survey while he was Senior Econ- omist, Department of Commerce, Government of Guam. He thanks an anonymous referee for recom- mendation> resulting in a more accurate and clearer paper.

Contemporary Economic Policv (ISSN 1074-3529) Vol. XJV, January 1996

and three from Guam Customs officers en- tering their shift.

The appendix presents the survey ques- tionnaire. Question 3 contains the survey objective, which was to test the impact of the alternate presentations of the heat- pump water heater cost on the purchase of a heat-pump versus a standard water heater. This impact proved insignificant. The purpose of Questions 1 and 2 was to present a scenario and not to generate an empirical information. Nevertheless, the response to Question 1, ”Would you or a member of your family install-the new water heater or would you pay for instal- lation?” proved behaviorally and statisti- cally significant. The demographic vari- ables requested at the beginning were sta- tistically insignificant.

111. EMPIRICAL FINDING

Equation (1) represents results of a logit regression. Standard deviations are in pa- rentheses. The dependent variable, In(ODDS), is the natural logarithm of the odds of a person choosing a heat-pump water heater (Question 3). The indepen- dent variable, INSTALL, equals 1 for the subject response of “You or family mem- ber install” and equals 0 for the response of “Pay for installation” (Question 1).

(1) In (ODDS) = 0.9163- 1.8654 (INSTALL). (2.92) (.595)

Sample size = 64

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OWestem Economic Association Lntemational

MAYER: DO-IT-YOURSELF AND ENERGY CONSERVATION 117

The impact of buyer installation on the odds of purchasing a heat-pump heater is statistically significant at more than a 2 percent level. Odds of choosing a heat- pump heater falls from 2.50 to 0.39 when the family installs rather than hiring a pro- fessional installer. Since it is unclear as to what population the survey sample repre- sents, the numerical figure for the change in the odds has less meaning than the sta- tistical significance of the impact.

IV. POLICY CONCLUSIONS

That buyer installation lowers the incli- nation to purchase a heat-pump water heater reveals a special problem in pro- moting energy efficient equipment with an unfamiliar name. The unfamiliar name suggests to the do-it-yourself installer that he or she may need additional skills and perhaps additional tools in order to com- plete the job.

When installation of energy-saving equipment with an unfamiliar name is es- sentially the same as that of standard equipment, the promotional material should so state. When installation requires added or different operations, the promo- tional material should provide informa- tion on those requirements. For example, displays of the equipment might include such instructions. Installation kits and quality instructional material can provide the information and tools required for in- stallation and reduce the reluctance to buy the equipment.

Installing a heat-pump heater does re- quire skills beyond those necessary for in- stalling a conventional water heater. Al- though some survey subjects suspected such, it is unlikely that many were certain.

Requirements for installing a conven- tional water heater are strength, basic elec- trician skills, and basic plumbing skills. Requirements for installing a heat-pump heater are the same plus refrigeration me- chanic skills.

Probably, very few survey subjects knew whether new installation skills are required and what those skills are. How many read- ers know what a heat-pump water heater is? Further, survey subjects in this and two other heat-pump-heater purchasing sur- veys with a total of 1,065 subjects fre- quently asked, ”What is a heat-pump water heater?” Without knowing what a heat- pump heater is, one cannot know the skill requirements for installation.

The immediate policy implications for Guam’s electric utility are limited. After the survey, the utility instituted demand- side management rebates. For monitoring, the rebate for a heat-pump water heater requires the consumer to use a GPA (elec- tric utility) registered contractor for instal- lation. However, the results may have im- plications for extensions of the demand- side management program.

V. RELATIONSHIP TO OTHER FINDINGS

A plausible inverse relationship be- tween buyer installation and income sug- gests an inverse relationship between in- come and purchase of some energy saving equipment. In addition, the implicit dis- count rate for a family’s investment in en- ergy-saving equipment varies inversely with income (Bhattacharjee et al., 1993, p. 71; Hausman, 1979, pp. 52-53). The evi- dence is from the purchase of window air- conditioning units. Since efficient window air-conditioning units have the same name and require the same installation skills and tools, the finding cannot result from perceived or actual differences in those re- quirements.

REFERENCES

Bhattachajee, Viayak, Charles J. Cicchetti, and Wil- liam F. Rankin, ”Energy Utilities, Conservation, and Economic Efficiency,” Contemporary Policy Zs- sues, January 1993, 69-75.

Hausman, Jerry A., ”Individual Discount Rates and the Purchase of Energy-using Durables,” The Bell Journal of Economics, Spring 1979, 33-54.

118 CONTEMPORARY ECONOMC POLICY

APPENDIX

Questionnaire

This study is to learn how people spend their money on appliances. The study results zidl assist the Government of Guam in Utility Planning

Please put a check ( d ) or an X on the choice best representing your answer.

Ethnicity: Chamorro 0 Filipino 0 Statesider 0 FSM 0 Other 0

Homeowner Status: Homeowner 0 Renter 0 Other (specify)

Marital Status: Single 0 Married 0 Divorced 0

Sex: Male 0 Female 0 Number in your household

Suppose your home hot-water heater is leaking, not heating water, and is not repairable. The replacement heater has an 8 year warranty.

1. Installation of a new heater costs $120.00.

Would you or a member of your family install the new water heater or would you pay for installation?

You or family member install 0 Pay for installation 0

2. A heat-pump water heater is very cheap to operate. It would lower your electric bill by $285.00 per year or $23.75 a month.

Would this savings interest you? Yes 0 No 0

3. The price of a standard water-heater is $330.00. The price of a heat-pump heater is ($2,260.00/$930.00 more).

Which model upodd you buy?

Standard Model 0 Heat-Pump Model 0

Question 3 with the italic entry and with the underlined entry were used on alternative copies of the questionnaire.