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4 solutions to high utility bills: fixing the split incentive problem

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In my last post, “What your drafty house has in common with overpriced ballpark beer”, I wrote about how the split incentive problem means that if you rent your home, you’re probably paying way more for energy than you would if you owned. Since then, the weather has gotten a bit nicer, but the problem of split incentives between landlords and renters remains, ready to pop up again once the AC units come on. Fortunately, many different groups and governmental agencies have come up with some interesting ways of fixing the screwed up incentives for home energy costs.

There’s of course the traditional regulatory response – called “command and control” – which involves simply mandating that certain efficiency measures be adopted by any new building or retrofit, like requiring buildings to install heating systems that meet some efficiency standard. But beyond being generally opposed by economists as inefficient, many existing buildings are out of reach of these regulations, since most cities can only impact what happens when new buildings are constructed or significant changes are made to existing buildings, leaving the majority of buildings grandfathered in. With that in mind, here are a few promising ideas:

  1. Energy Aligned Lease – Misaligned incentives mean that money is being left on the table. Energy Aligned Leases are a way of divvying up the savings so that both the tenant and landlord are more or less guaranteed to come out ahead. The idea is that the tenant and landlord agree on an engineer’s estimate of the projected energy savings, which would end up paying back the capiteverybodywinsal cost of the improvement over a period of time. The tenant then pays back 80% of that figure each year,so that the tenant is protected from uncertainty about the savings estimate and gets to start pocketing savings right away. The payback period stretched out an extra 25% so that all the capital costs are paid back. (Watch this explained in more detail in a great video by a representative of the Urban Green Council.) The landlord ends up getting what amounts to a free upgrade to their building, increasing its value. It’s a true win-win.The Energy Aligned Lease was pioneered in part by the New York City government, which created model language. The first such lease in New York was signed in the spring of 2011, with Mayor Michael Bloomberg presiding, and now the city requires that all new leases in enters into have an energy aligned clause.
  2. Energy Report Cards – This is the response favored by Lucas Davis and David Levine, the researchers mentioned in the last post. The idea is to have something similar to the yellow sticker on Energy Star appliances that compare the expected energy usage compared to competing products. Davis and Levine imagine text along the lines of:“This apartment unit has expected gas and electricity costs of $123 per month, assuming average usage. That utility bill is higher than 67 percent of apartments this size, meaning most apartments this size have lower expected energy costs.”
    The downside is that the researchers only foresee a report card that would be able to predict energy costs associated with appliances and the home’s heating/cooling system, which have easily measurable efficiency. With quality of insulation as central as it is to home energy use, though, this would lose an important part of the picture. It wouldn’t be impossible to try to add in information about factors like insulation, but these would be much more difficult to measure and to get a baseline to compare against.
  3. Tax Incentives for Efficiency – This idea doesn’t really eliminate the split incentives problem as much as it just does an end run around it. Basically, the government is paying for the improvement through tax deductions rather than having the tenant pay for it out of energy savings like in the Energy Aligned Lease. President Obama proposed something similar in his 2011 State of the Union address with the Better Buildings Initiative.
  4. Share the Utility Costs – This last idea is certainly the simplest. Why not just cut the utility bill in two and have both the tenant and landlord pay half each month? This way both parties are getting a partial price signal to use energy more efficiently. I would imagine this option’s lack of popularity could be from logistical difficulties and resistance from energy providers at having to deal with double the number of clients. There probably also would be some inertial resistance to adoption based on the unorthodox nature of the agreement.

Written by rethoughtblog

March 25, 2013 at 2:56 pm

What your drafty house has in common with overpriced ballpark beer

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As I’m sitting paying my highest heating bill of the winter, next to the drafty window half-heartedly sealed with a layer of plastic, it’s easy to grouse about my landlord not springing for basic energy efficiency measures (Saran wrap on the windows — really?) that could cut our energy use dramatically. It turns out, though, that it’s not just my landlord.

A few months ago, Brad Plumer at the Washington Post and Matthew Wald at the New York Times both had posts looking at the problem of poor energy efficiency in rental units. Based on research by Lucas Davis at the Haas School of Business at UC Berkley, they show that like you might expect, homeowners are way more likely to make energy-saving investments that pay off in the long run. You really are paying way too much for energy at your rental apartment.

The problem isn’t that your landlord has it out for you. It’s called the “split incentive problem” (or the “landlord-tenant problem,” your choice), where who pays for energy is separate from the energy user. But that’s a really wonky term, so let’s put it in terms that are easier to relate to: alcohol.

You see, the typical rental house where the tenant pays for energy is sort of like buying beer at the ballpark. You end up paying way too much for low quality beer, so you try to make the drink last as long as possible, but what you end up with is a warm quarter cup of Bud Light by the fifth inning. Not a great experience. Similarly, you can turn your thermostat down to 66 degrees, but you’re still going to be paying way too much for energy when your house leaks like a sieve, has an outdated heating system, and a refrigerator from 1986.

On the other hand, when the landlord includes energy costs in the lease (common in commercial properties), you have a situation much closer to that producer of great decisions, the open bar. After you’ve paid your entrance fee — or gone in for free if you’ve really lucked out — every extra drink has a marginal cost of zero. With those terms even the most responsible drinker is likely to go back for just one more drink. Since they bear all the costs, in this scenario, your landlord is likely to act like frat houses do, those paragons of getting masses of people drunk cheaply, and serve you the energy efficiency equivalent of Natty Light or Keystone. The only difference here is that cheap is good.


More similar to your landlord than you’d think

Read the rest of this entry »

Written by rethoughtblog

February 28, 2013 at 8:12 am


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Quick post, but something that has been bothering me:

Fact checkers like PolitiFact have been coming under fire from all corners recently, some of it very well deserved. But many conservatives have jumped on the fact that more statements made by Republicans or conservatives are rated “false” or “pants-on-fire” as opposed to statements by Democrats or liberals. Look!, they say, clear evidence that the fact checkers are biased!

Here are a few examples:

“In July you printed a chart with two years of PolitiFact Ohio results. It showed Democrats with 42 ratings of Mostly False, False or Pants on Fire, while the Republicans had a total of 88 in those categories. Doesn’t that prove you guys are biased?”

Cleveland Plain Dealer reader

And, slightly more sophisticatedly:

“A data-driven analysis of PolitiFact Florida’s 554 rulings on statements made by individuals appears to show a clear bias against Republicans and in favor of Democrats. As the truthfulness of a statement increases, so does the percentage of Democratic claims included in PolitiFact Florida’s rating.

… This dynamic appears to be a textbook example of what statisticians call ‘selection bias.’”

(This is followed by two cherry picked examples of how and whether PolitiFact chose to review certain statements.)

— Sean Davis, Red State

Here’s the thing these two posts neglect to mention: not reporting an exact 50/50 split is only evidence of bias if the split is in reality 50/50. Read the rest of this entry »

Written by rethoughtblog

September 9, 2012 at 10:52 pm

Are smart people stupid? Or just cocky?

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ImageKnow your tendencies. And correct for the bad ones.

That’s somewhat of a foundational belief for me, so I was interested to read Jonah Lehrer’s (@jonahlehrer) article in the New Yorker, “Why smart people are stupid” that cites a new study from James Madison University and the University of Toronto saying that when it comes to cognitive biases, we’re pretty much all toast.

Cognitive bias, of course, is a problem because it means that you’re … wrong. The column has plenty of examples of the sort of seemingly simple issues that can short circuit clear thinking and lead to biased (wrong) answers, like the following:

A bat and ball cost a dollar and ten cents. The bat costs a dollar more than the ball. How much does the ball cost?

At first glance, a lot of people will say 10¢. On second glance, that’s obviously wrong (correct answer being 5¢ for the ball and $1.05 for the bat). While mental shortcuts can save us a lot of time, they can also lead to mistakes both small and large.

The study suggests that we all are prone to dumb mistakes like that. More worrisome, intelligence and even explicit knowledge of your own cognitive biases is no help and is actually no more than a “subtle curse”, making you more likely to make mistakes. Lehrer writes:

The results were quite disturbing. For one thing, self-awareness was not particularly useful: as the scientists note, “people who were aware of their own biases were not better able to overcome them.” This finding wouldn’t surprise Kahneman, who admits in “Thinking, Fast and Slow” that his decades of groundbreaking research have failed to significantly improve his own mental performance.

Disturbing, indeed. These findings seem particularly poignant coming just after I finished reading Chris Mooney’s (@ChrisMooney_) The Republican Brain (review coming soon, I swear), which, perhaps surprisingly given the name, chronicles common biases from both sides of the left-right political spectrum. I read that book holding the belief that increased familiarity of the cognitive biases associated with my political values would help me overcome them and get a more undistorted view of the political world. But Lehrer’s column suggests maybe I was only making things worse?

Lehrer gives a hint of explanation — a phenomenon he calls the “bias blind spot.” It’s another version of the fundamental attribution error, the tendency to explain away your own behavior based on the situation while seeing others’ actions as reflecting their core personality. It’s why, for example, if you snap at someone blocking the escalator you might blame it on being stressed out and in a rush. But if that other guy does it? Well, he’s probably a jerk.

Interestingly, the study’s authors wrote that “more cognitively sophisticated participants [at least as measured by S.A.T. scores] showed larger bias blind spots” . They don’t speculate much on why this correlation might exist. A few thoughts:

  1. Where would humility fit in?
    I doubt I’m the only one who tends to think that intelligence often goes hand in hand with arrogance or cockiness. If trusting our first, biased instincts is the issue, would a level of “cognitive humility” that makes us distrust our first impressions help? I’d love to see a similar study that measures the correlation for humility as well as intelligence.
  2. The solution might lie in groups
    Even if it is effectively impossible to overcome your own biases, it’s usually easy to pick them out in others. For this to be a strong defense against irrationality, though, there have to be group norms that promote calling out other people’s biases. That’s why the scientific method works so well: prove someone else makes an error, you get published in a journal.
  3. Would anticipation help?
    Sure, we might always have the same cognitive tendencies and fall victim to them time after time, but what about going into a situation knowing what biases are likely to arise? For example, when you go to the supermarket, you can know that you’re likely to suffer from anchoring bias when you look at things that are on sale. The higher original price makes the sale price look even better by comparison than it would on its own. Perhaps we just need to enter the grocery store distrusting our tendency to jump at a product just because it’s half off. Or maybe that’s just me.

Psychology, especially as it pertains to politics, is increasingly becoming an interest of mine, so expect more posts in the future.

Written by rethoughtblog

June 19, 2012 at 10:33 pm

Mann and Ornstein, tilting at a strawman

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After causing a stir with an op-ed called “Let’s just say it: The Republicans are the problem”, longtime purveyors of centrist Beltway conventional wisdom Norm Ornstein of the American Enterprise Institute and Thomas Mann, of the Brookings Institution, followed up with another called “Want to end partisan politics? Here’s what won’t work — and what will”.

In it, they trot out five reforms they say won’t fix Washington and four they say can. However, especially for a column co-written by a campaign finance expert like Ornstein, the segment criticizing public financing of elections displayed a surprising lack of apparent familiarity with the motivations for campaign finance reform.

Here is their segment on why public financing like a Fair Elections system “won’t work”:

4) Public financing of elections will restrain special interests

Certainly, in the post-Citizens United world, the financing of political campaigns is a nightmare — a Wild West of secret big money and a new Gilded Age of influence peddling by special interests.

But full public financing of campaigns is not the answer. We understand the appeal, but short of an unlikely constitutional amendment or a reconstituted Supreme Court placing limits on private money in political campaigns, public funding simply cannot provide candidates enough resources to overcome hugely expensive “independent” campaigns against them by super PACs. Even then, the influence of organizations such as the National Rifle Association, AARP, the Chamber of Commerce and the AFL-CIO is not defined simply by the money they spend on campaigns. They also mobilize powerful collections of single-minded members and followers to pressure lawmakers; and they hire former lawmakers or congressional staff members to gain access to power and boost policy expertise on key issues. Campaign donations are a relatively small part of the resources they invest in influencing government.

Whether or not campaign money is the key, restricting the flow of private money in politics has proven devilishly difficult, and the actions of the Roberts Supreme Court and the feckless Federal Election Commission have made it virtually impossible.

This really doesn’t get it. First, here’s a primer on Fair Elections, a form of public financing they are de facto criticizing, so that you can orient yourself. I would love to do a systematic deconstruction of all the problems in these three paragraphs, but time is limited, so here are a few:

1)      Missing the Appeal of Public Financing — Mann and Ornstein say they “understand the appeal” of public financing, but then offer no evidence that they actually do understand what is beneficial about Fair Elections. From this segment, it appears that the only possible reason to enact Fair Elections is to “provide candidates enough resources to overcome hugely expensive ‘independent’ campaigns against them by super PACs”.

So, preventing campaign contributions from buying access to lawmakers? Allowing candidates without connections to the wealthy or big corporations (a.k.a. normal people) to run viable campaigns? Raising the voices of small donors so that they actually matter? Freeing legislators from spending all their time fundraising so that they can, oh I don’t know, legislate? Nope. All unimportant.

2)      Interest Group Influence Is Not a Prima Facie Problem — Interest groups having influence is not an inherent problem. What’s important is whether that influence is pro-democratic or anti-democratic.

Mann and Ornstein say that groups like the NRA problematically “mobilize powerful collections of single-minded members and followers to pressure lawmakers”. Hmm… Large groups of citizens who care about an issue urging their elected representative to vote a certain way and letting them know that this will factor into their choice on Election Day? Sounds a lot like democracy to me. Decisions are supposed to be based on the will of “We, the People”. The problem is when interests have undue influence that is not based on “one person, one vote,” but on the size of the bank accounts backing those interests.

3)      Limits ≠ Public Financing — Despite claiming to be talking about public financing, virtually all that Mann and Ornstein talk about is restrictions on private money in elections. First off, there are three broad categories of campaign finance: disclosure, limits, and public financing. Talking only about limiting the powerful is missing half of the picture. Restoring some semblance of democratic equality requires both preventing a few voices from drowning out everyone else, as well as raising up those whose voices are lost in the current system.

4)      The January 20, 2010 Delusion — Perhaps worst of all is the implication in this piece that American elections were perfectly fine until the Roberts Court came in and mucked everything up with their Citizens United ruling. Don’t get me wrong, Citizens United is an utterly clueless ruling, exhibiting a perverted interpretation of the First Amendment and naivety about how elections actually work. But on January 20, 2010, the day before that decision, American politics was already broken, with big money already dominating and buying results in a big way.

-Kurt Walters

Written by rethoughtblog

May 21, 2012 at 11:40 pm

How Politico bungled its Elizabeth Warren story

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(Okay, the headline’s a little extreme, but it was just too perfect)

In a story that stands out as poorly written even for political tabloid Politico, writers Manu Raju (@mkraju), David Catanese (@davecatanese), and contributor Maggie Haberman (@maggiepolitico) failed one of the primary rules of journalism: disclose the connections your sources have to the subjects of the story and to the media outlet itself. This is why, for example, every Washington Post article about Kaplan Co. will cite that it is the parent company of the Washington Post.

The story, “How Warren Bungled First Controversy”, was about Elizabeth Warren apparently listing herself as a minority law professor because of her 1/32 Native American heritage, an admittedly strange move, and her reaction to the ensuing hubbub.

The entire article feels like an attempt to stoke the coals of controversy, with a lot of misleading question-raising that places ideas in people’s heads under the guise of a genuine question (“he says he doesn’t torture puppies in his spare time, but how can we really be sure?”). See the following:

She said she listed her Native American heritage as a way to meet others who are “like” her, but law school directories listed her vaguely as a “minority” teacher for nearly a decade — not specifically as someone with tribal roots.

She said that she’s long been “proud” of her heritage, but that assertion seems to be undermined by her decision to delist herself as a minority teacher in the law directories and the fact that there is virtually no mention of her lineage over the past decade-and-half, including as she climbed the ranks in the Obama White House.

She said that listing her ethnicity was not part of her efforts to seek a job, yet she scrubbed that listing as she received tenure at Harvard.

While Warren insists she was hired solely on merit, the campaign has no plans to release records detailing whether she cited her minority status as she sought law jobs in the early part of her career.

But that’s not really what irked me. The segment that stood out to me as violating journalistic ethics was when they cited William Jacobson, the author of a conservative legal-focused blog Legal Insurrection, and law professor at Cornell Law. Even Cornell itself described it as “the conservative blog Legal Insurrection” in a story about Jacobson’s defense of the Tea Party.

Jacobson also is a fairly widely published conservative pundit, including at outlets like the Wall Street Journal, CBS Evening News, and Fox … oh and at Politico Arena. The reporters seem to feel no need to disclose this. Here’s the segment:

“If she is 1/32nd Native American … is it really appropriate to list yourself that way and knowing you will therefore be listed as a minority law professor?” asked William Jacobson, associate clinical professor of Cornell Law School, the author of a blog read in the legal community. “Why in the world would you list yourself when it is such a tenuous and distant relationship?”

“Why would she have done it, and why would she have stopped when she was at Harvard?” Jacobson said. “The whole thing makes no sense.”

In a normal question of law school tenures or something reasonably neutral, perhaps it would be okay to neglect to note Jacobson’s conservative background. But in a Senate race where Warren is the Democratic nominee? And when Jacobson has been regularly attacking Warren? Might be relevant.

In fact, Jacobson has been pushing the Warren Native American story HARD. He’s written no less than nine articles in the past week on the subject (more than one a day, for those watching at home), including favorites like “Elizabeth Warren’s claim of being 1/32 Cherokee in doubt” and Elizabeth Warren claims listed herself as minority to meet people, but story doesn’t hold up (Update: High cheekbones?). Check out the whole list here.

To be clear, I don’t have any issue with the content of what Jacobson said, and there wasn’t any wrongdoing by him. It’s also true that Warren’s move seems rather stupid. But, if we’re supposed to take Politico as a legitimate news organization, its writers owe us, the readers, context about speakers’ backgrounds and affiliations so that we can better evaluate their  motives and messages.

Hopefully, Politico will quickly update the story to disclose Jacobson’s conservative background, opposition to Warren, and his ties to Politico. And I hope they avoid similar issues in the future.

Edit: It came to my attention that my About page was not displaying on the right sidebar. Recognizing the obvious irony of a post urging disclosure without any easily accessible info about me on my (very new) blog, here goes: Kurt Walters, works at Public Campaign Action Fund, usual disclaimer about nothing I write speaking for anyone but myself.

Other edit: made a few small edits for clarity and to include the actual title of their piece (which has since changed). Otherwise this post’s title doesn’t make too much sense.

Written by rethoughtblog

May 4, 2012 at 11:44 am

Free speech and political spending: A return to the town meeting metaphor (part one)

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April 30, 2012 — Washington, D.C.

A few weeks back, I went to a fantastic forum on the state of money in politics hosted by the House Democrats. (Here’s a blog post I wrote about the event for my job).

There were a few interesting comments by the House members in attendance, like Minority Leader Nancy Pelosi calling for the passage of the DISCLOSE Act and a constitutional amendment overturning Citizens United and campaign finance champion Rep. Chris Van Hollen rightly panning Anthony Kennedy for his notoriously clueless decision in the same case. Citizens United, said Van Hollen, “could only be made by people that had no clue how the American political system works in the 20th and 21st centuries”.

The intellectual interest for me, though, came when the experts testified: Norm Ornstein from the (conservative) American Enterprise Institute; Paul Ryan of the Campaign Legal Center; Zephyr Teachout, a law professor from Fordham University (disclosure: Teachout is on the board of directors for my employer, Public Campaign Action Fund); and Monica Youn of the Brennan Center for Justice. There was far too much thought-provoking testimony to document here, but I’ll lay out a few choice tidbits and talk about the classic town meeting free speech metaphor that struck me as a desperately needed addition to discourse around the First Amendment.


The gist of the testimony was that our current method of financing campaigns is already highly corrupting and will almost certainly get much worse without significant reform as corporations, wealthy individuals, and others adjust to the new legal possibilities provided by the Supreme Court in recent years in cases like Citizens United v. FEC and v. FEC.

At the forum, Teachout cited a colleague as saying that the Court’s conservative majority “went and got drunk on the First Amendment”. The Court’s current jurisprudence is an outgrowth of its landmark ruling in 1976, Buckley v. Valeo, which held that “money is speech”, or, more precisely, that political spending and donations are afforded First Amendment protection.

As the American Prospect wrote, “Four decades of decisions have allowed the rich and powerful to transform free speech—our most important tool of bottom-up self-government—into a means of top-down social control.” In a way this isn’t terribly surprising, as Teachout noted that well-functioning representative democracy is far from the default state of human society. Throughout history, something more akin to oligarchy is far more common as elites with [large amounts of money] or other sources of power are able to translate this into an outsize political influence. Viewed in this light, perhaps the slow degradation of the integrity of American elections since post-Watergate reforms should be seen more as a regression to the mean that takes continued energy to prevent.

Norm Ornstein issued one prediction that showed how self-defeating or simply clueless the Court’s view of the First Amendment is. With the rise of super PACs, to which campaigns are effectively outsourcing their attacks, he predicted that in the weeks before the election, TV viewers at home in swing states will see virtually nothing but “vicious attack ads”. Not only is this a miserable state of affairs, it also highlights how “speech” is in many regards a zero-sum affair. Ornstein suggested that many of the highest funded super PACs might engage in “roadblocking” — monopolizing the best ad space and making it impossible for others to speak in that time.

Ryan also brought out a way in which the Court’s conception of the value of speech doesn’t accord with reality. He noted that corporations and super PACs “can dissolve at the drop of a hat”. This produces a true breakdown of the money is speech argument. The impermanence of incorporated entities means that people will not have the benefit of knowledge about a “speaker” to provide context for what is said. The name “Americans for a Strong Tomorrow” doesn’t give us much information. What’s worse, with corporations free to dissolve and reform under a different name with virtually no downside, they can engage in untrue attacks without any fear of reputational damage. A true speaker will be held to account if she slanders someone or repeatedly makes baseless allegations. A human speaker obviously cannot dissolve herself and reform under a new name to block  anyone from using her past lies to form their interpretation of her current claims.

Tomorrow, I’ll follow up on these comments and write about the town meeting as a model for free speech and how this can improve our discourse.


Written by rethoughtblog

May 1, 2012 at 12:21 am