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Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector

Louis-Gaëtan Giraudet

Energy Economics, 2020, vol. 87, issue C

Abstract: Information problems have early been suspected to be the main barrier to energy-efficiency investment. I review the vast yet piecemeal research that has been carried out since. Focusing on energy efficiency in buildings, I organize the review around the concept of credence good: just like that of auto repairs or taxi rides, the quality of energy-efficiency measures is never fully revealed to the buyer; as a result, it is subject to multiple information asymmetries. My first contribution is to distinguish symmetric-information problems from information asymmetries. The former arise when information is either incomplete or imperfect, but equally shared by contracting parties; as non-market failures, these can be addressed by technological progress and insurance markets. My second contribution is to give structure to the information asymmetries associated with energy efficiency by disentangling screening, signalling, moral hazard and price discrimination within a variety of contractual relationships involving buyers and sellers, owners and renters, borrowers and lenders, and regulators and policy stakeholders. I find evidence of information asymmetries to be compelling in utility-included rental contracts, unclear in home sales and rentals, and scarce in retrofit contracting and financing. I conclude by discussing the intricacies between informational and behavioural problems in energy-efficiency decisions.

Keywords: Energy-efficiency gap; Imperfect information; Adverse selection; Principal-agent problems; Home energy retrofit (search for similar items in EconPapers)
JEL-codes: D82 D81 D86 H23 Q41 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:87:y:2020:i:c:s0140988320300372

DOI: 10.1016/j.eneco.2020.104698

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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