The price of innovation: An analysis of the marginal cost of green buildings |
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| Institution: | 1. Massachusetts Institute of Technology, Center for Real Estate, 77 Massachusetts Avenue, Cambridge, MA, 02139, USA;2. Maastricht University School of Business and Economics, P.O. Box 616, 6200 MD, Maastricht, the Netherlands;1. The World Bank, United States;2. Georgetown University, United States;1. Department of Resource Economics, University of Massachusetts-Amherst, USA;2. Department of Economics, University of Alaska-Anchorage, USA;3. Institute for State Economy, Nankai University, China;4. School of Public and Environmental Affairs, Indiana University-Bloomington, USA;1. Land Environment Economics & Policy Institute, Department of Economics, University of Exeter, Exeter, EX4 4PU, UK;2. Centre for Social and Economic Research on the Global Environment, School of Environmental Sciences, University of East Anglia, Norwich, NR4 7TJ, UK;3. University of Siena, Department of Political Science and International, Italy;4. Department of Economics and Management, University of Trento, Via Vigilio Inama, 5, 38122, Trento, Italy;1. University of Alaska Anchorage, 3211 Providence Drive, Anchorage AK, 99501, United States;2. Yale School of Forestry & Environmental Studies, 120 Kroon Hall, New Haven CT, 06510, United States;3. McGill University, 805 Sherbrooke St West, Canada;1. Resources for the Future, United States;2. John F. Kennedy School of Government, Harvard University, United States;3. Department of Agricultural and Consumer Economics, University of Illinois, United States |
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| Abstract: | Energy efficiency plays an important role in reducing the carbon externality from buildings, but economic analyses of more efficient, green building have thus far ignored input costs. This paper finds that the average marginal cost of green-labeled construction projects is smaller than the value premiums documented in the literature. However, design fees, representing just a fraction of development costs but paid largely up-front, are significantly higher for green construction projects. These projects also take longer to complete. The results provide some insight into the market barriers and market failures that may explain the relatively slow adoption of otherwise economically rational green construction practices. |
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| Keywords: | Environmental innovation Technical change Building codes Energy efficiency Carbon externality Construction costs O31 Q55 Q56 R33 |
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