HEC Research Papers Series,
HEC Paris

Abstract: We propose that home buyers and sellers rely on “heuristic hedonic models”: simplified representations of properties’ utility-bearing attributes. We test this hypothesis using public administrative data from France, where properties’ (continuous) estimated energy consumption is summarized by a (discrete) energy label on a scale from A to G. We document substantial misreporting-driven bunching of energy efficiency scores just below the relevant cut-off values, which points to labels’ perceived importance. Estimates of donut RDD models show that house prices drop sharply when energy consumption crosses the boundary to a lower rating. Moreover, we observe larger price discontinuities in areas where the relation between energy efficiency and house values is harder to estimate. Finally, the discontinuities also show up in home sellers’ list prices, suggesting that a simple buyer inattention story is insufficient to explain our findings.

Keywords: energy efficiency; energy labels; house prices; hedonic models; bunching.

JEL-codes: D12; D83; Q58; R12; R28

29 pages, April 17, 2023

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