Energy use by apartment tenants when landlords pay for utilities

Energy costs are included in the rent for many US apartments, giving tenants little incentive to conserve. This apparent market failure has two explanations: the tenants value the utility-included rental contracts more than they value the extra energy they consume, or the landlords value the contracts more than the cost of that extra energy. We use the Residential Energy Consumption Survey and the American Housing Survey to estimate energy consumption and rent premiums for utility-included apartments. While rents are higher than for comparable metered apartments, the difference is smaller than the cost of the energy used, a finding that supports landlord-side explanations. (C) 2003 Elsevier B.V. All rights reserved.