Optimal Consumption and Investment with Energy-Efficiency Adoption
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arXiv
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| Main Authors: | , , |
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| Format: | Preprint |
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2026
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| _version_ | 1866917451296407552 |
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| author | Britto, Anthony Oliveira, Carlos Kleinebrahm, Max |
| author_facet | Britto, Anthony Oliveira, Carlos Kleinebrahm, Max |
| contents | Despite many decades of research, economically grounded models that analyse energy consumption and energy-efficiency adoption within a unified framework remain underdeveloped. This article addresses this gap by proposing a model of consumption, investment, and energy-efficiency adoption under uncertainty. It develops new definitions of the rebound and backfire effects, and integrates their welfare implications into a model of optimal subsidy design. Macro-level technology diffusion and energy consumption across heterogeneous agents are also formalised. Explicit results for core objects are derived, including the adoption threshold and post-adoption strategies, and these are shown to depend on agent wealth, introducing a novel channel through which financial conditions influence technology-adoption decisions. An approximation scheme is proposed to estimate welfare implications explicitly. Adoption of energy efficiency is shown to be welfare improving in the main. A detailed case study of a representative German single-family home illustrates the theoretical results. Numerical analysis indicates that the subsidy policy effectively steers aggregate energy consumption. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2604_28052 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Optimal Consumption and Investment with Energy-Efficiency Adoption Britto, Anthony Oliveira, Carlos Kleinebrahm, Max General Economics Economics Despite many decades of research, economically grounded models that analyse energy consumption and energy-efficiency adoption within a unified framework remain underdeveloped. This article addresses this gap by proposing a model of consumption, investment, and energy-efficiency adoption under uncertainty. It develops new definitions of the rebound and backfire effects, and integrates their welfare implications into a model of optimal subsidy design. Macro-level technology diffusion and energy consumption across heterogeneous agents are also formalised. Explicit results for core objects are derived, including the adoption threshold and post-adoption strategies, and these are shown to depend on agent wealth, introducing a novel channel through which financial conditions influence technology-adoption decisions. An approximation scheme is proposed to estimate welfare implications explicitly. Adoption of energy efficiency is shown to be welfare improving in the main. A detailed case study of a representative German single-family home illustrates the theoretical results. Numerical analysis indicates that the subsidy policy effectively steers aggregate energy consumption. |
| title | Optimal Consumption and Investment with Energy-Efficiency Adoption |
| topic | General Economics Economics |
| url | https://arxiv.org/abs/2604.28052 |