Insulation For The Tenants
Posted by Chris Martin at 3/2/2009 1:58 PM 
Categories: Shovel Ready, Market Failure
Tags: Shovel Ready
Categories: Shovel Ready, Market Failure
Tags: Shovel Ready
It should be evident to the readers of this blog that Wonks Anonymous believes that there are a great many worthy investment projects which are not being undertaken by the private sector but could be completed as a part of a national stimulus/recovery program.
Of course readers versed in Economics will ask. If these are such good opportunities then why hasn't the private sector done it already? Wonks Anonymous respects this question and would like to begin to answer it here with examples of investments that have not been undertaken because some institutional or psychological factors prevent a market solution.
Many Americans now live in rental housing and many more are likely to do so in the near future. With rental housing it is almost always the case that the landlord owns the building, pays for maintenance and enjoys the benefit of any improvements. The tenant most often pays for general utilities and takes responsibility for cleaning etc.
This is indeed the situation that Wonks Anonymous finds himself in. He can respond - indeed he has responded - to problems with the insulation of his domicile through various small do it yourself projects which ultimately cut his electric bills and save energy. He has not undertaken major projects - insulating the attic or the walls - that might well drop his bills further.
If he were the owner he could expect to reap the full benefits of these projects in future savings and higher home value. He would also not need to hassle the whole permission thing.
At the same time Wonks Anonymous landlords - fine, caring people - do not pay particular attention to Wonks Anonymous utility bills. They certainly do not care about them as deeply as they might if they were paying them. Incentives to conserve exist and people don't follow through on them.
Wonks Anonymous is open to the argument that a large scale publicity campaign, combined with free legal aid, might result in a general change in rental contracts in our nation and that this change might result in a market based solution to this problem. He believes that a simpler resolution might be achieved by government sponsored programs to insulate rental property.
Of course readers versed in Economics will ask. If these are such good opportunities then why hasn't the private sector done it already? Wonks Anonymous respects this question and would like to begin to answer it here with examples of investments that have not been undertaken because some institutional or psychological factors prevent a market solution.
Many Americans now live in rental housing and many more are likely to do so in the near future. With rental housing it is almost always the case that the landlord owns the building, pays for maintenance and enjoys the benefit of any improvements. The tenant most often pays for general utilities and takes responsibility for cleaning etc.
This is indeed the situation that Wonks Anonymous finds himself in. He can respond - indeed he has responded - to problems with the insulation of his domicile through various small do it yourself projects which ultimately cut his electric bills and save energy. He has not undertaken major projects - insulating the attic or the walls - that might well drop his bills further.
If he were the owner he could expect to reap the full benefits of these projects in future savings and higher home value. He would also not need to hassle the whole permission thing.
At the same time Wonks Anonymous landlords - fine, caring people - do not pay particular attention to Wonks Anonymous utility bills. They certainly do not care about them as deeply as they might if they were paying them. Incentives to conserve exist and people don't follow through on them.
Wonks Anonymous is open to the argument that a large scale publicity campaign, combined with free legal aid, might result in a general change in rental contracts in our nation and that this change might result in a market based solution to this problem. He believes that a simpler resolution might be achieved by government sponsored programs to insulate rental property.
I heartily agree that markets can’t be counted on to produce good social outcomes. But in the case illustrated, I wonder whether the incentive to property owners (improving their property’s energy efficiency, which would largely benefit their tenants) would be sufficient to overcome the inertia of the “do nothing option.” Finding good contractors and then managing their work is a time-consuming hassle. I’m not sure how many landowners would take advantage of the spending program Wonks Anonymous outlines. Are there any examples out there of similar programs succeeding?
My first response is that it is better than the current, do nothing, approach. But clearly we would need organized marketing and delivery of some sort. I would take a two part approach.
There are lots of fix it guys out there who are not doing so well and it would be fairly easy to come up with a certification program for these folks. Trained engineers in the energy conservation field might help out in program design. These folks could market themselves and do a lot of the footwork.
Second we might want to train more people - a sort of a Civilian Insulation Corps - people could join and learn the skills needed become contractors. Ideally this would foster competition between public and private sectors and give the consumer a wide range of choices.
WA
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