Question

Explain some insights of why there is a gap between prescribed energy savings of the Energy star label (about 30 percent) and the estimated savings of the label found in the empirical models.

Answer 1

The estimation is done with a sample from the population

The prescribed energy savings of the energy star label can be considered for the population. The estimated savings of the label found in empirical models can be considered for the sample. The gap is the deviation of the sample from the population . It can be called as the stochastic disturbance term. It is an unobservable random variable taking positive and negative values.

The gap occurs due to the following reasons:

1. If the determining variable of energy savings is incomplete.

2. Unavailability of data. Even though the variable is prescribed in the model due to the unavailability of data it may not be included in the process of estimation.

3. If we use wrong functional form for estimation, it yields certain gap even if we have theoretically correct variables explaining the energy savings.

4. Even if we succeed in introducing all variables in to the model, there may be some randomness in the behaviour of the consumers who use the product.