Elisabetta Cornago, environmental economist at the OECD Environment Directorate.
Incentives to (not) disclose energy performance information in the housing market
Authors: Elisabetta Cornago and Luisa Dressler
While Elisabetta currently works at the OECD, this paper was developed with Luisa Dressler while at Université Libre de Bruxelles. The paper is unrelated to OECD work and does not present OECD positions on the topic.
Disclosure of energy performance certificates (EPCs) is often incomplete, which hampers their effectiveness in relieving information asymmetries between landlords and tenants in the housing market. Even when a certificate is available, landlords do not always disclose it. This contradicts the unraveling result, according to which all landlords should disclose quality information unless it is costly to do so. We leverage a cross-sectional dataset of residential rental advertisements from the Belgian region of Brussels to empirically evaluate incentives to disclose an EPC. We find that two fundamental assumptions for the unraveling result are not confirmed in our setting: tenants value energy performance of rental property only when dwellings are of very high quality and do not appear to rationally adjust their expectations when faced with dwellings that withhold their EPC. The paper formulates specific policy advice for reforming EPC mechanisms to increase disclosure rates.
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