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Asymmetric Information on the Market for Energy Efficiency: Insights from the Credence Goods Literature

Abstract:
Asymmetric information is an important barrier to the adoption of energy efficient technologies. In this paper, we study supply-side implications of the associated incentive structure. We build on existing evidence that, in some settings, energy efficiency owns a credence component, whereby the supply side of the market has more information about what technology is best for consumers. The literature on credence goods markets suggests that an information advantage by expert-sellers leads to market inefficiencies, including low trade volume. We start by developing a simple framework to study supply-side incentives related to the provision of energy efficient technologies. We then document inefficiencies and potential remedies by discussing linkages between an empirical literature on credence goods and that on the market for energy efficiency. Doing so, we identify implications for the design of policies promoting the adoption of energy-efficient technologies.

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Keywords: Energy efficiency, Asymmetric information, Credence goods, Energy policy, Environmental externalities, Technology adoption

DOI: 10.5547/01956574.42.4.blan

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Published in Volume 42, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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