Demand Policies: Energy Consumption Takes Time

John Dimitropoulos, University of Sussex

Although time has been recognised as an important factor determining patterns of consumption, its importance for energy use has only recently been appreciated. Time scarcity can drive consumption decisions and therefore influence energy consumption in many ways.

Using elements of household production theory, as developed by Gary Becker, this paper explores the implications for household energy consumption under constrained time. Demand for energy is derived from demand for energy services that are produced within the household. Household production is then optimised subject to inequality constraints that reveal three insightful cases for potential allocation of time and income. Under assumptions, the non-linear optimisation problem is then aggregated across consumers and stretched over stages of economic development. Becker’s framework depicts successfully the well-documented historical path of employment, leisure and consumption as capital accumulates in a growing economy.

In addition, a characteristics model, as suggested by Lancaster (1971), is implemented for an energy service. Analysis followed by an illustrative example in characteristics space exhibits that time scarcity can impose preferences that oppose the traditional income-driven choice in energy consumption. It is shown that under constrained time, increases in energy consumption can also derive from the need to save time.

Finally, the impacts of technological changes that are followed by welfare gains in energy consumption, also known as rebound effects, are obtained from technology enriched demand functions for energy services. This outcome provides insights into the causes of rebound effects from improvements in both energy and time saving technology. Both of these effects can contribute to increased energy demand.