The Simpler the Better? Threshold Effects of Energy Labels on Property Prices and Energy-Efficiency Investments

Abstract

Using British data on over 7 million residential-property sales, we find that the provision of simplified energy-efficiency (EE) information leads to important market effects. UK legislation requires the use of an energy label that shows an EE rating score (1–100) mapped into arbitrary color-coded rating bands (A–G). Applying a regression-discontinuity design, we document significant price discontinuities at rating-band thresholds, providing evidence of heuristic thinking in the market. Importantly, these price discontinuities influence market behavior as sellers are more likely to make EE investments if their property is just below a threshold. We discuss policy considerations and avenues for future research.