A search cost approach to energy efficiency barriers

Bo Andersson, Stockholm School of Economics

Keywords

Abstract

There is one part of the energy efficiency literature that suggests the existence of significant opportunities to reduce energy use by the implementation of technologies that are cost-effective under todayÉs economic conditions, and yet not fully implemented. ln this paper a search-theory approach is used to show how the existence of a search cost induces a rational consumer to purchase equipment that would not be selected had the consumer been well-informed at the start of the search process and guided by economic efficiency criterion. Consumers must base their purchase decisions on observed prices and expectations of equipment performance, and in order to form an accurate base for decision-making the consumer must search for the individual product that meets the specified needs. This search can not be undertaken without a cost. Search costs may therefore explain the incomplete adaption of seemingly cost-effective e4luipment. This also suggests a role for interventions in order to facilitate consumers access to information, and thereby reduce the search cost. It is however shown that under reasonable assumptions the search cost has to be almost eliminated to ensure that consumers choose the most cost-effective, and thereby energy-efficient, model on the market. This implies that the interventions used have to significantly reduce the search cost in order to reduce energy use notably.