Accepted Manuscript

Title: Household preferences for energy saving measures:

Approach of discrete choice models

Author: Omar Jridi Saoussen Aguir Bargaoui Fethi Zouheir

Nouri

PII: S0378-7788(15)30039-6
DOI: http://dx.doi.org/doi:10.1016/j.enbuild.2015.06.013
Reference: ENB 5918

To appear in: ENB

Received date: 4-2-2015

Revised date: 15-5-2015
Accepted date: 3-6-2015

Please cite this article as: O. Jridi, S.A. Bargaoui, F.Z. Nouri, Household preferences
for energy saving measures: Approach of discrete choice models, Energy and Buildings
(2015), http://dx.doi.org/10.1016/j.enbuild.2015.06.013

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 Household preferences for energy saving measures: Approach of discrete
choice models

Omar JRIDIa1, Saoussen AGUIR BARGAOUIb, Fethi Zouheir NOURIc

t
ip
a
Laboratory of Research in Applied Microeconomics (LARMA), Faculty of economic sciences and management, Tunis ELMANAR
University, Campus University - B.P. 248 - El Manar II - 2092 TUNISIA, jridi.omar@yahoo.fr

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b
Laboratory of Research in Applied Microeconomics (LARMA), Faculty of economic sciences and management, Tunis ELMANAR
University, Campus University - B.P. 248 - El Manar II - 2092 TUNISIA, aguir_saoussen@yahoo.fr

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c
High School of economic sciences and commercials, Tunis university, LARMA, 4, Abou Zakaria El Hafsi street- 1089 Montfleury –
TUNISIA, fethinouri@yahoo.fr

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Abstract:

The aim of this paper is crystallized around the research of the energy saving measures adoption’s
ed

determinants in the residential sector. Using data from the latest survey of the Tunisian Company of
Electricity and Gas, we study the specifications of discrete choice models to the characteristics of three
different electrical purposes: the Solar Water Heaters, the Low-Energy Bulbs and the classes of energy
pt

efficient refrigerators. The results suggest the strong heterogeneity of households, making the effect of
energy policies a bit obvious. However, by adopting a perfect rationality, these households give importance
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to the enrichment of electricity prices and gains in energy savings, as far as the importance of the changes
in equipments’ price. Subsequently, we urge policy makers to create mechanisms of balancing the grants of
conventional energies by increasing the grants on energy efficient equipments’ purchasing prices.
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Keywords: Rationality, heterogeneity, buildings, discrete choice models, energy policy

JEL Classification: D21, Q4, R21, H3, R58, C25.

1
Corresponding author: JRIDI Omar, Mailing address: 29, street Essanaouber Alward city, Oued Ellil-Manouba, Tunisia 2021. E-mail:
jridi.omar@yahoo.fr Phone: +216-20-512-885 / +216-71-628-693.

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Page 1 of 24
 1. Introduction

Since 2000, the energy situation in Tunisia has experienced significant changes marked
by the widening of energy deficit and the stagnation of the expensive levels and the volatility
of the international energy prices. The gravity of the situation places the management policy
of energy demand in the spotlight as an inevitable requirement, reassuring the sustainability of
socio-economic development.

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Analogously to any policy, action is conveyed through the horizontal and vertical deployment
of a group of instruments. In this case, and subsequently to the precept which dictates that the

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energy is not sought for itself but for the service it provides, these instruments aiming to
promote the adoption of saving energy technologies [1]. However, a large literature review

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demonstrates the under-adoption of such investments, even if they are economically
justifiable2. This paradox, often recognized as the energy efficiency gap, is the subject of an
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antagonism between engineers, who initiated the issue, and economists may provide
persuasive explanations [2].
In this debate, proposals advanced by Jaffe et al. [3], Hassett and Metcalf [4] and
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Gillingham et al. [5] aroused a great interest in breaking with the neo-classical approaches for
evaluating investments. They argue that this paradox is not due to irrational behavior or
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market failures, but a perfectly rational behavior, underlying the fact of maximizing option
values generated by these investments.
Subsequent to this verdict, the work of Hirst and Brown [6] raise the fact that the adoption of
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these investments must be triggered by political incentives. If some postulate that the subsidy
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to the purchase price of the equipment is the most effective tool [5,7,8], others argue that it is
necessary to convey the reality of prices and establish appropriate pricing of energy [9,10].
Between these two currents of thought, underlying the ideological affiliations of economists,
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we postulate that the effect of policy interventions is not obvious in a context of strong
heterogeneity of households.
In this conjectural framework, the paper’s contribution is to provide an understanding of
households’ behavior via the research of the meaning and the scope of the factors influencing
the adoption decisions of three energy-saving equipments. To this end, we discuss the

2
The adoption of equipment can be interpreted as an investment to the extent that they can generate energy
savings flows, relative to most energy equipment [11]. In this sense, an investment of energy saving is profitable
if the value of the energy savings generated over its lifetime exceeds its investment cost (purchase cost plus
installation costs) [12,13].

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Page 2 of 24
adequate econometric models for households’ preferences assessment serving as benchmarks
for successful energy policies.
The economic analysis of decisions to adopt these energy-saving equipments is based on
utility maximization process under a budget constraint. Subsequently, to rank the preferences
of households to various discrete choice alternatives, we use the discrete choice models. The
advantage presented by these models is to transcribe the explicit and implicit circumstances in
energy saving decisions. In this regard, McFadden [14] postulate that the representative

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agent’s preferences are not invariant, but depend on several endogenous and exogenous
determinants that affect how the individual perceives the actions.

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A literature review allows us to classify these determinants into two main categories. The

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first category includes socio-economic factors related to the decision maker of energy saving
adoption (households). In this case, Poortinga et al. [16] raise that the communal areas and
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levels of education are crucial in this decision. However, in this category of attributes, the
relationship between the probability of adoption of such equipment and household income has
no unanimity among economists. If this relationship is debatable for some studies (see
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Grösche and Vance [17], it is significant for others, with a divergence concerning the sign of
his influence (See [18,19] for contradictory results).
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The second category includes the contextual determinants and technical factors related to the
characteristics of housing and alternative choices. Concerning housing characteristics,
occupancy status (owner or occupant) and the type of house (individual or collective) are
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determining factors. The influence of these factors includes measures that require the
installation work, such as thermal insulation or solar water heaters, counting the owners of
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individual houses are the most advantageous (see [20,21,22] for the case of various measures
of installations).
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The rest of this paper is organized as follows. In section 2, we consider the methodology that
goes from the theoretical to the practical, by showing the expected signs, and from general to
specific, arguing the choice of energy-saving measures. In sections 3 and 4 we discuss,
respectively, the models and the adopted specifications. In section 5, the results of empirical
applications are presented. Finally, conclusions about main findings and policy implications
are summarized in section 6.

2. Methodology
2.1. Review of empirical applications

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Page 3 of 24
 Empirically, identifying the determinants of the energy saving measures’ adoption is
conducted by the application of discrete choice models. Starting with the works of McFadden
[14,15] we identify two main advantages of these models. First, and since the number of
factors involved in the decision-making time is high enough, these models overplay random
term to the function of the independent variables. This econometric approach advances the
possibility of considering a relatively small subset of factors, all respecting the perfect

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rationality of households3. Second, and to the extent of the diversity of characteristics of
energy saving measures, these models suggest a range of specifications and regression

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techniques adaptable to the nature of these distinctive available data.
In this context, we note that the energy saving measures present a multitude of levels of

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energy efficiency, for a given use. Since the household is facing multiple alternatives of
choices, it is more convenient to carry a multinomial study to take into account the
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characteristics of all alternatives. We postulate that this study is more representative and more
meaningful than restricting it to a binary choice between adopting energy saving equipment or
not.
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It is in this assumption of existence of several alternatives that a significant number of
empirical studies have used multinomial models. Indeed, in the exploration for determinants
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of adoption of energy saving measures in heating systems, Cameron [13] proceeds by a nested
logit model (NL) with two levels. The estimation results point the strong significance of
changes in energy prices, the cost of investment and household income level. Using the same
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modeling technique, which allows you to group several alternative choices according to their
similarities, Grösche and Vance [17] studied the behavior of households facing the adoption
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of 13 thermal insulation measures.

Their results show that households are more prone to these investments with lower renovation
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costs and higher expected earnings. These results are consolidated with those of Gamtessa
[23]. His work focuses on finding the underlying factors in the decision to participate in
energy renovation programs in the Canadian residential sector. By using the technique of
regression ―zero inflated fish‖ on logit and probit models, the results reveal the importance of
financial incentives and renovations in household costs inclination to adopt such investments.

3
According to Thisse and Billot [24], the selection of all factors taken into account in decision-making is
influenced by the state of mind of the individual at the time of its decision, such as mood or other contextual
factors that determine the way in which the individual perceives their choices.

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Page 4 of 24
In addition to the cost of equipments and energy prices, other technical and economic
attributes are very valuable by energy saving makers. The study of Banfi [25] on the
ventilation and insulation of windows and of facades measures notes that the earnings of
energy saving, the thermal comfort benefits, the air quality and the protection against noise
are all key factors in the thermal insulation investment in Switzerland. The importance of
these determinants is maintained in the context of the British economy in the work of Rainey
et al. [21], whose results assume the fact that the desire to save money and the increase of

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comfort are key factors.

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2.2. Choice of energy-saving measures

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From this exhaustive review of empirical applications discloses two main findings. A large
majority of research works in the American, Canadian or European context are related to the
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adoption of thermal renovation measures. The choice of these investments is mainly due to
the significant heating occupies in the structure of residential energy consumption, due to
climatic conditions of cold seasons in these countries. Parallel to this logic, and as part of the
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Tunisian residential sector, it is necessary to adapt the study to the reality of residential energy
consumption’s structure.
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By looking for electrical usages, Table 1 summarizes the structure of the power consumption
and the energy savings generated by related political agendas. Subsequent to this structure, we
are interested in energy saving measures in refrigerators, water heaters and lighting. These
pt

three stations cover 60% of electricity consumption and are, moreover, a burden of 445
million Tunisian dinars in terms of subsidies granted by the Tunisian government.
ce

The second finding related to the integration of technical and economic attributes of
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alternative possible choices, which gives the household crucial when buying its energy use.
Specifically, we integrate electrical energy needs of different classes of refrigerators, the price
and the power of different bulbs available on the Tunisian market, as well as aspects of
households about the cost and energy saving effect of solar water heaters. In order to enhance
the power-flow and enjoy lower energy bills, we assume that the electricity price is one of the
key attributes, whose price rising encourages households to streamline their energy uses [26].

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Page 5 of 24
2.3. Survey data

Since 1984, the Tunisian Company of Electricity and Gas is committed to making
quinquennial census surveys of energy use in the residential sector, to its customers. In this
study, we use data from the sixth survey, which advance a reliable and detailed knowledge of
equipment, volumes and structures of electrical purposes. The sample for this survey consists
of 3 000 households with a sampling method that is based on the principles of socio-economic

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and geographical stratification and randomization. The response rate was 96%, of which

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92.9% are deemed correct answers [27].

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The census is divided into three main headings: (i) issues related to socio-economic status of
the household, such as age, activity, income, education level, etc. (ii) issues related to

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housing, such as housing type, tenure status, date of construction, number of room, the natural
gas connection, etc. (iii) issues related to residential energy use, including reserve of TCEG of

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a part in the adoption of energy-saving equipment, namely low-energy bulbs, solar water
heaters, labeling of refrigerators and insulation of roofs.
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3. Discrete choice models

Under a constraint of modeling of a relatively small set of explanatory factors, McFadden

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[15] incorporates factors that are not taken into account in the decision by the decomposition
of the utility function (U) in two main parts: the deterministic part (V) registered observable
pt

determinants of U and random term (ε) which registered the choice of which is not accounted
for by the deterministic component. This approach leads us to the random utility model.
ce

Formally, we initialize the value that provides the individual i in the use of alternative j, as
follows:
U ij V j ( X i )   ij (1)
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The probability that the individual i select the alternative j, considering its
characteristics X i , is associated with the probability that the indirect utility afforded the use of

j is greater than the utility for any use afforded by k (k ≠ j) contained in the choice set.

P  j|Xi   P V j  X i    ij Vk  X i    ik  (2)

 P  ik   ij V j ( X i ) Vk ( X i ) 

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Page 6 of 24
To make this model operational, according to the inconvenience of the linear estimation, we
are led to specify the distribution of the error term  ij and function of deterministic

variables V j ( X i ) .

3.1. Multinomial logit model

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In order to treat the choice between a number of alternatives j = 1, ..., J (with J> 2), we
use multinomial logit models (MNL). In the implementation of these models, we specify the

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distribution of the error term by simplifying assumption according to which ( ij ) follows the

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Grumbel law. According to this distribution law, the error terms are independently and
identically distributed (i.i.d), the cumulative distribution function is:
F  ij   exp( exp(  ij )) . It follows that the probability of the equation (2) is reset in the
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following form:
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exp(V j ( X i ))
P  j|X i   (3)
 k 1 exp(Vk  X i )
J
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Establishing the direction and the magnitude of the influence of the determining factors in the
pt

decision to adopt energy saving measures is conducted through the estimation of the
deterministic variables function ,V ( X i ) . By bringing h explanatory variables in the row vector
ce

xi = (1, xi1, xi2, …, xih). The influence of the factors of this vector on the probability of adoption
of the alternative j is measured by estimating the column vector consisting of the
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parameters  ' j  (  0 j , 1 j ,  2 j ,,  hj ) . Ultimately, the probability of equation (3) takes the

following generic form:

exp( xi  j )
P  j|Xi   (4)
 exp( xi  k )
J
k 1

The estimated coefficients  ij are based on the maximum likelihood approach. Assuming yij

a discrete variable that takes the value 1 if individual i choose alternative j and 0 if not, the
contribution of N individuals to the likelihood of the alternative j (L (β)) is measured by:

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Page 7 of 24
 N J
L     ( P  j|Xi )
yij
(5)
i 1 j 1

The logarithm of the likelihood function is as follows:

N J
lnL     yij ln( P  j|Xi ) (6)
i 1 j 1

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According to McFadden [14], the log-likelihood function is generally concave. The

ˆ estimator to which the function lnL ˆ   peaks is designed as the β converging estimator.

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d lnL   
= 0

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d
(7)
Referring to equation (4), the estimated coefficient ˆ , associated with the explanatory
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variable xij , measure the effect of a unit change of xij on the ratio of probability between the
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adoption of alternative j and adopting the alternative k (assumed an alternative reference).
However, if the estimated parameters of multinomial model haven’t been a subject to
technical difficulties, the peculiarities of the alternative choices impose a priori modeling
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specification problem. In the following, we distinguish the ordered logit model (OL) and
nested logit model (NL).
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3.2. Ordered logit model

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Multinomial qualitative variable is called ordinal if the terms of choices are present in a
determined natural order. In this case, the use of MNL model is inappropriate to ignore this
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feature. To exploit the information on the ordered appearance of these alternatives, we use the
OL model. For J terms, this model takes the following form:
0 if yi*  k1

yi  j if k j  yi*  k j 1 (8)

J if yi*  k J

While k j 1  k j and latent variable yi* is defined as:

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Page 8 of 24
 yi*  xi    i (9)

By choosing the OL model, we shall have to consider the logistic distribution function F (.).
Likelihood probabilities of data observations are obtained as follows:
1
Pr ( yi  0) = Pr ( yi*  k1 ) =
1  exp(  k1  xi  )

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1 1
Pr ( yi  j ) = Pr ( k j  yi*  k j 1 ) =  (10)
1  exp(  k j 1  xi  ) 1  exp(  k j  xi  )

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1
Pr ( yi  J ) = Pr ( yi*  k J ) = 1 

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1  exp( k J  xi  )

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As k1 and k J are respectively defined by -∞ and +∞.
The likelihood function associated with the probability of choosing alternative j equal to:
N
an J
L  y,  , k1 ,, k J   Pr ( yi  j )
i 1 j 1
yij
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yij
N J  1 1 
     (11)
1 exp(k j 1  xi  ) 1 exp(k j  xi  ) 
i 1 j 1 
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3.3. Nested logit model

pt

The nested logit model (NL) is used if the proportional substitution between neighboring
alternatives seems existent. To this end, the model release assuming independence with
ce

respect to irrelevant choices (IIA property), grouping choice j, according to their similarities in
groups l (with l = 1, ..., L) . In the case of a NL model with two-level, we assume the xl
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characteristic variables of groups, intervening when choosing between the two groups, and
xj(l) characteristic variables of the choice j, intervening when choosing between the
alternatives of the same group l, where x is the set of explanatory variables. The probability of
choosing alternative j is equal to:

P  j|x   P  l|x  . P  j (l )|x j(l)  (12)

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Page 9 of 24
In other words, the probability of choosing alternative j equal to the product of the probability
of choosing the group l, among the possibilities of L groups, and the probability of choosing
alternative j (l), of the JL the alternative groups l.
Note here that the error terms are correlated between alternatives of each group, without being
correlated with alternatives of two different groups. The IIA property is therefore released
except between the alternatives of two groups, in other words a partial violation of the IIA
property. Subsequently, we note that the modeling of the choice between the alternatives j (l)

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in each group l is given back to the MNL model. The conditional probability of choosing
alternative j (l) belonging to the group is similar to that of equation (4)):

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exp( x j (l )  l )
P  j (l )|x j(l)  

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(13)
 j 1 exp( x j (l ) l )
JL

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The estimation of MNL model for L groups, estimated values of the parameters  l allow us to

identify the inclusion variable Il, therefore the formula is:

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JL
I l  ln  exp( x j (l ) l ) (14)
j 1
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Finally, the maximization of the utility function that provides a choice of alternative j, we
pass indirectly to the probability of the selection of the group l [28]:
pt

exp( xl   l I l )
P  l|x  
ce

(15)
 exp( xl   l I l )
L
l 1
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With l means the coefficient which measures the degree of independence between the

choice j of the same group l. The more l is high the lower the alternatives of the group l are

interdependent. Finally, we note that for l = 1, we find the hypothesis of IIA property, which

switches the NL model to suit a MNL model.

4. Specifications and explanatory variables

The econometric specification of discrete choice models mainly depends on the characteristics
of the dependent variable. For a binomial variable, we competes binary logit and probit
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Page 10 of 24
models4. If the dependent variable is multinomial, the choice of model depends on the
characteristics of the alternatives contained in the cardinal choice. If these alternatives are not
ordered, a multinomial logit model is possible [29]. If these alternatives are presented in a
specific order, the ordered logit model will be more suitable, since it allows to exploit the
information relative to the possible ordered choices aspects [30,31]. A final scenario
postulates that if these alternatives are close substitutes, the above models will no longer be
possible due to the violation of the assumption of the independence of irrelevant choices. The

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nested logit model is more appropriate after the attachment of similar choices in cardinal
under different choice [32,15,13].

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4.1. Modeling the determinants of the adoption of solar water heaters

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The first model focuses on identifying the determinants of the adoption of solar water
heaters as an alternative to other types of water heaters on the market (electric, natural gas and
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LPG) that we group them under the name ―other‖. Subsequently the objectives of the
PROSOL program, and in accordance with the objective of our study, modeling doesn’t
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consider the determinants of the adoption of each type of water heater, but is only interested
in the determinants of the adoption of solar water heaters, which are publicly funded.
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The model used is therefore a binary logit, as we compete it to a binary Probit model. We
assume explaining the adoption of solar water heaters by three categories of explanatory
variables: the socio-economic characteristics of households, characteristic of the housing and
pt

the technical-economic aspects expressed by households on solar water heaters (price aspect,
effect aspect and subsidy aspect) [25,16]. Finally we include a dummy variable ―Dummy for
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connection to the natural gas network‖, to take into account the effect of the connection of the
promotion strategy of natural gas on the adoption of solar water heaters. With h 1 explanatory
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variables, the estimation results thus correspond to the following equation:

4
As we saw in the specification of the Logit model in Pobit model we assume that the error terms ( ij ) are i.i.d
X
1  t2 
and follow the normal distribution function: ф(X)=  2   2  dt . We note that the two models are

exp


similar estimates; the estimates obtained from a logit model are larger by about times of those of the Probit
3
model. See McFadden [15] for a review on the discrete choice models.

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Page 11 of 24
  P WH  solar   h1
ln     0  i X i (16)
 P WH  auther  
  i 1

4.2. Modeling the determinants of the adoption of efficient refrigerators

Regarding the modeling of energy efficiency measures of refrigerators, it seems

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insignificant to look for the determinants of the adoption of refrigerators with labeling, so that

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the research for the determinants of adoption of the most efficient energy classes. The choice

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of this specification is due to two main reasons. (1) All households with older than 10 years
refrigerators do not have energy labels, due to lack of regulation in that time. In this category

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of refrigerators, non adoption of energy labels is so explained only by the age of the
refrigerator. (2) Since 2004, the energy management policy prohibits the marketing of
refrigerators without energy label5.
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In this case, the household has no choice to adopt or not the labeling of refrigerators, but
rather, pushed, through regulation, to choose between energy efficiency classes of
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refrigerators. Ultimately, it is necessary to extract the sample of households that possess
refrigerators with energy labels, while incorporating a dummy variable ―Dummy for
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certification‖, which takes into account the effect of the entry into force of the refrigerators’
certification program. If the age of the refrigerator does not exceed five years, the dummy
pt

variable takes the value 1 (if not it is set to 0).

The refrigerator model is about the determinants of the adoption of the most efficient
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energy classes. At this level, to form coalitions with the prospects of the certification program
of refrigerators6, which provides, from 2015, the elimination of the least than class 2 efficient
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energy classes, we assume that refrigerators incorporate this category in one energy class, that
we call non-performing class ―NP class‖. This class is defined as the reference alternative.
We assume explaining this choice by two categories of explanatory variables: the technical
characteristics of refrigerators by their energy classes (capacity, in liters and energy
requirement, in kilowatt) and socio-economic characteristics of the household [33,16].

5
August 2004 Law of energy control, from decree N° 2004-2145 concerning labeling of household appliances,
and the following decrees (Decree of 10-09-2004 on the display and decree on 24-10-2005 MEPS).
6
Prospects of refrigerators’ certification program designed to eliminate cold domestic class 3 devices in 2015
and class 2 in 2018, and refine the classifications within class 1.

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Page 12 of 24
With h2 explanatory variables, the estimation results thus correspond to the following two
equations:

 P  energy class  1  h2

 P  energy class  NP   10 
ln     1i X i
  i 1

 P  energy class  2   h2
ln     20   2i X i (17)
 P  energy class  NP  

t
  i 1

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However, given the degradation of the average of energy needs (in kilowatt/year) from

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refrigerators to energy classes NP to the energy class 1, it seems appropriate to use the
information for the appearance of ordered choice alternatives. To this end, we choose between

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the MNL and OL models. Assuming the thresholds cut1 and cut2 the model thus takes the
following form:



1if energetic need  cut1
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Energy class   2 if cut1  energetic need  cut2 (18)

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 3 if energetic need  cut2

The probabilities associated with three alternatives of energy classes for household i are
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reformulated as follows:

1
Pr ( energy class  1) = Pr ( ER  cut1 ) =
pt

1  exp( cut1  xi  )
ce

1 1
Pr ( energy class  2) = Pr ( cut1  ER  cut2 ) = 
1  exp(cut2  xi  ) 1  exp( cut1  xi  )

1
Pr ( energy class  3) = Pr ( ER  ER2 ) = 1 
Ac

(19)
1  exp(  ER2  xi  )

4.3. Modeling the determinants of the adoption of energy-saving lamps

Regarding the illumination station, and in order to focus the attention on promoting energy
efficiency in this usage, we assume that the selection of households is among the six types of
bulbs on the market and deferred their levels of power (in watts). We note that power levels
are neighboring alternatives from household perspective. Proportional substitution between
these alternatives seems so existent. Subsequent to this characteristic, the ratio between the

13
Page 13 of 24
probabilities of a household takes a 20W bulb and the probability of adopting a 75W bulb will
be higher if other alternatives are not listed in the cardinal choice.

In this context, and in order to overcome the restrictive assumption of independence

concerning the irrelevant choices (IIA property) of MNL model, we use NL model. This
extension of the multinomial model is to combine these two alternatives in similar alternative
sets through a tree structure (see Figure 1): incandescent bulbs, none energy efficient, with

t
three power levels and low consumption lamps, energy efficient, with three power levels.

ip
Similar to the tree structure, the model estimation is done at two levels, without imposing a

cr
sequential order in the selection of individuals: the top level relating to the choice between
adopting low-energy bulbs and incandescent bulbs, is supposed to be explained by household

us
characteristics. The bottom level relative to the choice of six levels of capacity bulbs,
supposed to be explained by the price and the lifetime of each bulb, as well as the
an
conventional7 lighting bill attributable to the common use of household and level the capacity
of the bulb used [34]. This variable varies between individuals, depending on their uses
(lighting hours), and between alternatives, according to the capacity of the bulb (Watt).
M
Assuming that all things being equal for the use and equipment, the variation of the
conventional lighting bill will underlying to only change in the price of electricity (TND/
ed

Watt).

5. Estimation results
pt

For the three models we apply the White test to detect the existence of variables which
haven’t constant variances, or in other words the heteroscedasticity problem. The general idea
ce

of the test is to regress the squared residuals on the independent variables of the model, to
verify if they contribute to the explanation of the adoption decisions. For all three models, the
Ac

test table zero p-value, which strongly rejects the hypothesis of heteroscedasticity. Also, for
the three estimated models, the chi-square test of Pearson8 gives positive results regarding the
independence of variables. The overall significance of models is indicated by the Wald test.

7
The conventional lighting bill extent invoice generated by the use of a common household, but postponed by
the ability levels of bulbs on the market. That is, in other words, the product of the capacity of the bulb, the
number of bulbs, monthly lighting hours, and unit price of Watt.
8
The calculated value follows the chi-square distribution with (N-1) * (K-1) degree of freedom, with N and K
the number of categories for each variable of the test. We accept the hypothesis H0 of independence of two
variables if X calculated  X theoritical at 5% confidence level.
2 2

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Page 14 of 24
5.1. The determinants of the adoption of solar water heaters

The first model is the adoption of solar water heaters for which we compete between two
specifications (Probit and binary logit). In the comparison of the two models, we mention first
that all the estimations results of the two specifications are converging (see Table 2). The
Wald test suggests an overall significance of the two specifications. The values of the Akaike
and BIC criteria are very similar with a slight performance of the probit model. The

t
percentage of correct classification is good enough for the two specifications. Finally, the

ip
Hosmer-Lemeshow test suggests that the two specifications have a good fit to the
observations, with a significant advantage in the probit model (0.7867 against 0.6145).

cr
The first category of attributes is related to aspects expressed in the market by households

us
for solar water heaters. The estimation results may advance benchmarks for the good conduct
of the PROSOL project. In this context, soliciting favorable aspects of households in technical
an
qualities of solar water heaters, by transferring reliable information about its positive effects,
including reduced energy bills, contributes significantly to their adoptions. The results raise
further the positive aspect of households on the price level is not a significant factor for the
M
adoption of solar water heaters, but they are more prone to these investments with the
perception of the favorable aspects of subsidies.
ed

The second category of variables relates to housing characteristics, which are significant for
the case of installations works. The occupation status is decisive in the adoption of solar water
pt

heaters. Indeed, with respect to tenants, owners are more inclined to solar water heaters
installation. The type of house is also a factor in the adoption of solar water heaters.
ce

Households living in popular type of housing are less likely to invest in the installation of
solar water heaters, because of their low level of income, which is situated in the monthly
Ac

average of 436.5 Tunisian dinars. The same result for the case of apartments is due to
inadequate installations and the increase in hidden costs inconveniences related to the
installations work. The villas and traditional houses, which represent together about 54% of
the housing park, are most prone to the installation of solar water heaters, particularly as they
are in majority owners with relatively higher incomes.

Regarding household characteristics, the results reflect strong heterogeneity. All attributes are
significant except household size, to which the head of household does not place a great
importance in the selection of solar water heaters. However, the likelihood of the adoption of
solar water heaters increases with income and education level, especially for those who have

15
Page 15 of 24
completed primary education and generally have a higher income. Also moving from rural to
communal areas increases the probability of adoption, under a higher diffusion in these
environments.

Finally, the latent variable that takes into account the connection to the natural gas network
play a significant role and decreases the probability of adoption of solar water heaters. This
result reflects a contradiction in the ways allowed by energy policy that subsidizes solar water

t
heaters and weakened indirectly their adoption by encouraging at the same time connection to

ip
natural gas.

cr
5.2. The determinants of the adoption of efficient refrigerators

us
In the analysis of the determinants of the adoption of energy classes refrigerators, we
compete two specifications: (1) MNL model in which we are seeking respectively for the
determinants of the adoption of efficient energy class 1 and 2, with respect to the adoption of
an
inefficient energy classes of refrigerators (class NP), which represents the status quo. (2) OL
model in which we seek the determinants of the adoption of the most efficient energy classes,
M
ordered according to their levels of energy needs. The table 3 summarizes the results of the
two models.
ed

Insofar as the OL model estimates a single equation on all levels of the dependent variable,
the interpretation of coefficients is done in a cumulative sense. We interpret the effect of an
explanatory variable on the probability of adopting a refrigerator of energy class 1 with
pt

respect to the adoption of a refrigerator with less efficient energy classes (2 and NP), or the
chances of adopting a refrigerator of efficient energy classes 1 and 2 with respect to the
ce

adoption of the refrigerators of the NP class, since the other explanatory variables are held
constant.
Ac

The first category of attributes takes into account the effect of the technical characteristics of
the refrigerators’ performance classes. By focusing on the results of the OL model, the
increase of one liter capacity of the refrigerator is associated with an increase of 0.106 times
of opportunities to adopt energy class 1 of refrigerator with respect to the adoption of
refrigerators with energy class 2 and NP, everything else being equal9.

9
Similarly an increase of one liter capacity of the refrigerator is associated with an increase of 0.106 times of
chances to adopt a refrigerator of energy efficient class of 1 and 2 with respect to the adoption of the
refrigerators of the class NP.

16
Page 16 of 24
The display of energy labels, which mentions the energy requirement of the refrigerator in
kWh / year, is significant for the adoption of energy efficient refrigerators classes (with less
energy consumption). To this effect, the decrease of 1 kilowatt / year of energy need increases
by 1.031 of the combined chance to adopt refrigerator with energy efficient classes 1 and 2
with respect to the adoption of NP class refrigerators. These results reflect, in addition, the
rationality of households with regard to energy expenditure of refrigerators, representing 38%
of the structure of the residential electricity consumption. However, this rationality is not

t
ip
maintained with respect to the duration of use. The expected result was in the sense that the
more this period is long the more individual is inclined to adopt energy efficient class

cr
refrigerator while the number of months of refrigerators branching expects a non-significant
result.

us
The second categories of determinants transcribe the heterogeneity of individuals. The shift
from rural to communal areas increases 1.583 times the chances of adopting an efficient
an
energy classes 1 and 2 refrigerators with respect to adoption of the refrigerators of the NP
class. An increase in refrigerator number, per year, is synonymous to an increase of 0.412
M
times of possibilities to adopt energy efficient classes 1 and 2 with respect to adoption of
energy-inefficient refrigerators class.
ed

The results also show that the increase of 1 dinar in electricity bill contributes to the increase
of 0.209 times of chances to adopt refrigerator with energy efficient classes 1 and 2 with
respect to the adoption of the NP class refrigerators. These significant results indicate further
pt

the performance of these energy classes of refrigerators on the control of electricity bills. The
unit increase in income is not significant on the possibilities of adopting energy efficient
ce

refrigerators of class 1 and 2 with respect to the adoption of the NP class. This result can be
explained by the fact that the more the household is richer the more the energy expenditure
Ac

punctures a very small part of his income, so it does not give great interest to control these
costs through the acquisition of energy effective equipment.

This result is more likely as the degradation of the effect of levels of education, at the expense
of the energy class 1. We observe that households with a low level of education, generally
associated with low income, are more rational against their electricity costs and therefore
more likely to purchase class 1 refrigerators that households have a higher level of education.
These results also hold for those of the MNL model. For similar results see Poortinga [16] in a
joint analysis of 23 energy-saving measures and Gamtessa [23] for the case of Canada. This

17
Page 17 of 24
result is opposite to that of the adoption of solar heaters water, for which households’ income
and low level of education are less likely to impact the adoption decision. This contradiction
is explained by the high price of solar water heaters which represent a barrier, especially for
low-income households. This finding converges with the result of Cameron [13], which
shows that the demand for energy-saving equipment is sensitive to changes in the cost of
investment and income level.

t
Finally, coming in force of the certification program of refrigerators, has a significant

ip
effect, with an increase of 0.280 times of adoption possibilities of energy efficient class 1 and
2 with respect to the adoption of the NP class refrigerators. In the case of the MNL model, the

cr
lack of significant results for class 1 refrigerator is explained by the fact that the introduction

us
of incentives for the promotion of class 1 is programmed from 2014.

an
5.3. The determinants of the adoption of energy-saving bulbs

The latest model is the adoption of energy-saving lamps to what we choose between two
M
models: the MNL and NL models. The relative superiority of NL model depends on the
likelihood of the IIA property. To this end we conducted two tests. The first test is the
ed

Hausman test applied to the multinomial model. This test involves comparing the results of
the estimates between the full model and the model lacking an alternative, except that the test
results predict a singularity, which we do not arbitrate on the plausibility of the IIA property.
pt

The second test is the likelihood ratio, whereby the ratio LR=2(L1-L0) follows a chi-square
ce

distribution N - (2k-1) degree of freedom10. The test gives a calculated value of 64.77 which
strongly rejects the null hypotheses of the validity of the IIA property. We strengthen the
Ac

convenience of this model by the Wald test that suggests the overall significance of the NL
model specification. Ultimately, the NL model is more appropriate for the estimation of these
data, whose results are shown in the following table.

The superiority of the NL model allows disclosing more significant variables, both for the
explanation of the adoption of energy-saving lamps and for the explanation of the choice of
the capacity of the lamps. This advantage comes to the specification which aims to better
explain the choices, avoiding the dilution of the information by the arrangement of the

10
With L1 equal to (-2 Log Likelihood of none constrained model) and equal to L0 (-2 Log Likelihood of
constrained model). N is the number of observations and k the number of variable.

18
Page 18 of 24
explanatory variables in two levels, according to the tree structure of the model (see Figure 1).
Subsequent to this tree structure, Table 4 summarizes the results of this model in its two
levels.

For top level, we conclude that a unit increase in income helps, but insignificantly, in the
adoption of energy-saving lamps, which authenticates the finding underlying the first two
models. Ultimately, the gap in price between energy efficiency equipment and reference

t
equipment is displayed, unless the low-income households tend to invest. Also, the number of

ip
children in the household is associated with a decline in investment in energy-saving lamps,
which is not a priority relative to other expenses such as health and education, especially for

cr
low-income households. Concerning the number of lighted rooms, the more the number

us
increases, the more the household is likely to adopt energy-saving lamps, under increasing
this equipment penetration rate and increasing the burden of lighting bills. Also households
who live in communal environments are more likely to adopt energy-saving lamps, under the
an
strong scattering of these lamps, relative to rural areas.

For the bottom level, we conclude from the fact that the more conventional lighting bill is
M
high, the less the household is likely to buy high capacity lamps, which may be responsible
for the increase in its bill. That is, in other words, the enrichment of conventional lighting bill,
ed

underlying the increase in the price of electricity has a positive effect on the purchase of
energy-efficient lamps, (see Nair et al. [35] and Wang et al. [36] respectively for the case of
Switzerland and China). Beyond that, the significance of this squared variable (square of the
pt

conventional lighting bill) implies that it has a non-linear effect. The positive sign indicates
that the relationship is convex, which converges with the rational behavior of households
ce

facing rising electricity prices. We conclude from the fact that the higher the price of
electricity increases, the more the household is supposed to purchase the most efficient low
Ac

energy consumption lamps (the lowest capacity). See Popp [10] for a specific application to
the relationship between energy efficiency innovation and energy prices.

In light of the rational behavior of households, rising prices of bulbs negatively impacts the
purchase of energy-saving lamps, even with a good reputation in their saving effects. This
result is more probable with the deterioration of household income. Finally, the average life of
incandescent and fluorescent bulbs is not significant, despite the undeniable gap, which runs
up to ten times between the two. This result is explained by the absence of this benefit in most
packages of low energy light bulbs.

19
Page 19 of 24
6. Conclusion and policy implications

For our three empirical applications, the results reflect a strong heterogeneity of
households, making the effect of energy policies obvious a bit. Taking into account the
significance of representative attributes of this heterogeneity is paramount. Specifically,
households live in communal environments are more likely to buy such equipment, given the

t
ip
wide regional disparities, particularly in terms of income and education. The heterogeneity is
also reflected in the characteristics of the housing when it comes to adopting equipment

cr
requiring installation work. In this regard, the owners of villas and traditional houses are more
likely to buy solar water heaters of relatively apartment’s tenants and popular houses. We can

us
generalize this result to any equipment that requires installation work arguing the plausibility
of this fact by the dilemma proprietor / tenant and the increase of the hidden costs of
installation work [20,38]. an
However, attributes related to the levels of energy use (such as the number of months in
M
refrigerators’ connection or household size in the case of water heaters) are not significant in
the adoption of energy efficiency equipment. The explanation is that the use of these services
is essential for everyday life, regardless of the type of disposed equipment. However, the
ed

adoption of these measures depends positively on the penetration of this equipment (such as
number of refrigerators or number of lighted rooms), signaling further favorable aspect that
pt

households perceive about the effects of energy savings from these measures.

The findings drawn about the relationship between household income and the adoption of
ce

these devices is that it is primarily tributary on the price differential between the energy
efficiency equipment and the references equipment. In fact, the more the gap is small and / or
Ac

hidden, the more low-income households are likely to invest. This result is confirmed in the
case of the adoption of energy efficient refrigerators classes, that the difference of price does
not occur (with respect to energy inefficient refrigerators classes) and denied in the case of the
adoption of solar water heaters and energy-saving lamps, where the price difference is high,
relative to the reference equipment. The advanced explanation is compatible with the
teachings of the neo-classical theory. The Tunisian household is a homo economicus.

It establishes a perfect rationality to its bills. By contrast, in a context of strong

heterogeneity of households, the results lead us to clarify that households with medium and

20
Page 20 of 24
low income are more likely to adopt such behavior, relative to high-income households that
do not grant great interest in these expenses, since they are draining a small share of their
income. Indeed, with the rising cost of energy bills, households are required to rationalize
their consumption by adopting efficient equipment, particularly if they appreciate too much
the effects of energy savings. Note that this rational behavior is more likely with lower
equipment prices, rising electricity rates, proxied by the effect of conventional lighting bill,
and all attributes related to technical characteristics of equipment, to what households give

t
ip
importance during the adoption of these measures.

It is in such framework of perfect rationality of households that the role of energy policy is

cr
crucial, particularly with the encouragement and advocacy of households concerning the

us
adoption of such equipment. The effect of policy instruments is significant on the horizontal
axis of deployment, through the dissemination of reliable information about the energy saving
effect. Specifically, our results suggest the ability of households to accept the hardening of the
an
regulatory program of Refrigerators Park that the state prevents in 2015, by expanding the
certification refrigerators towards the elimination of the less than class 2 refrigerators.
M
On the vertical axis of deployment of policy instruments, our results suggest that
households pay more attention to subsidies than lower equipment costs. This result is mainly
ed

due to the fact that these subsidies are occasional, while at lower prices, households can
stagger their purchases in anticipation of further price declines (see Hirst and Brown [6] and
Gamtessa [23] that emphasize the importance of financial incentives for triggering the
pt

adoption of the work).

ce

However, the integration of the effects of electricity prices, we can see that households are
more likely to adopt energy saving measures with the rising cost of electricity bills, except
Ac

with lower prices equipments. In this regard, during the decline in the price of the equipment,
the household seeks to maximize its option value under the irreversibility of the purchase
costs. It postpones thus the adoption decision, anticipating further cost reductions, self-
reinforcing effect of learning by doing. However, with the rising cost of electricity prices, the
household will be more encouraged to rationalize its electricity bills by adopting energy
saving measures [26]. In a second adoption grounds, household sees the increase in the option
value of the energy saving investment, subsequent to the valuation of energy saving flow
appreciated in dinar / kilowatt.

21
Page 21 of 24
 Ultimately, in the Tunisian context of subsidies of conventional energy, we urge policy
makers to create mechanisms of balancing the grants of conventional energies (taxation) by
increasing the grants on purchasing prices of energy efficient equipments. This combined
instruments policy has a double effect on the body of energy subsidies: Taxation helps, firstly,
to alleviate spending on electricity subsidies. The grant of adoption costs stimulates
dissemination of energy-saving equipment, which implies consequently, lower energy
consumption. In addition to the positive externalities of control energy consumption, in terms

t
ip
of reducing emissions of greenhouse gases, the decline in electricity consumption induced
indirectly the alleviation of tax base of the remaining energy subsidies.

cr
Acknowledgements

us
This research was financed by Tunis El MANAR University. Special thanks to the laboratory of
research in applied microeconomics (LARMA) and the direction of study and planning of the Tunisian

an
Company of Electricity and Gas for their supports in the data collection process.

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 t
Highlights

ip
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us
 We study the behavior of households in the adoption of energy saving equipment.
 We model the determinants of adoption of three electrical purposes in buildings.
 Household gives more importance to electricity tariff than prices of equipment.


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Subsidies for the purchase of equipment are likely to be ineffective.
Mandatory efficiency standards and electricity taxes are likely to be more effective.
M
ed
pt
ce
Ac

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Page 24 of 24