Information programs for technology adoption: The case of energy-efficiency audits

We analyze technology adoption decisions of manufacturing plants in response to government-sponsored energy audits. Overall, plants adopt about half of the recommended energy-efficiency projects. Using fixed effects logit estimation, we find that adoption rates are higher for projects with shorter paybacks, lower costs, greater annual savings, higher energy prices, and greater energy conservation. Plants are 40% more responsive to initial costs than annual savings, suggesting that subsidies may be more effective at promoting energy-efficient technologies than energy price increases. Adoption decisions imply hurdle rates of 50-100%, which is consistent with the investment criteria small and medium-size firms state they use. © 2003 Elsevier B.V. All rights reserved.

Discounting the distant future: How much do uncertain rates increase valuations?

We demonstrate that when the future path of the discount rate is uncertain and highly correlated, the distant future should be discounted at significantly lower rates than suggested by the current rate. We then use two centuries of US interest rate data to quantify this effect. Using both random walk and mean-reverting models, we compute the "certainty-equivalent rate" that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future. Under the random walk model we find that the certainty-equivalent rate falls continuously from 4% to 2% after 100 years, 1% after 200 years, and 0.5% after 300 years. At horizons of 400 years, the discounted value increases by a factor of over 40,000 relative to conventional discounting. Applied to climate change mitigation, we find that incorporating discount rate uncertainty almost doubles the expected present value of mitigation benefits. © 2003 Elsevier Science (USA). All rights reserved.