The Rebound Effect. From Classic Economic Theory to Behavioural Economics: an Experiment on Hyperbolic Discounting.

Abstract

It is a common opinion that improving the efficiency of an energy source will result in a proportional reduction of energy consumption, however this may not be the case, and efficiency gains could lead to a less than proportional decrease in consumption, or even to a net increase. This phenomenon is known with the name of rebound effect (with the case of an increase in energy consumption called ‘backfire’ or ‘boomerang’), and it was analysed for the first time by the English economists William Stanley Jevons, whom, in his 460–page work The Coal Question, showed how the passage from Newcomen’s to Watt’s engine augmented consumption of coal despite the efficiency improvement. This somewhat counterintuitive effect has, then, become to be known as the ’Jevons’ Paradox’. In more recent years the argument has been further analysed by many other authors, especially Daniel J. Khazzoom and Leonard Brookes, from whom it took the name of ‘Khazzoom-Brookes postulate’. This study provides a review of the literature, presenting a theoretical analysis of the ‘rebound’ effect, based on price elasticity and energy demand elasticity, and some of the main empirical evidences. But also to integrate it with the behavioural side, to see if this phenomenon is affected by some kind of bounded rationality or behavioural fallacies of the consumers, and more specifically to hyperbolic discounting issues.