DEMAND-SIDE MANAGEMENT - OVERCOMING MARKET BARRIERS OR OBSCURING REALCOSTS

This paper compares two approaches to estimating the net benefits of a demand-side management program that subsidizes the purchase of effici ent equipment. The total resource cost (TRC) test suggests net benefit s of US$6.9 million. Estimates based on consumer's surplus yield an es timated net loss of US$6.3 million. This gap is due to differences in estimates of participants' net benefits. Market failures do not appear to be significant and thus cannot explain much of the gap. The more p lausible explanation is that the TRC uses a lower discount rate than p articipants use for themselves and it omits some costs.