THE ENERGY PARADOX AND THE DIFFUSION OF CONSERVATION TECHNOLOGY

We develop a framework for thinking about the 'paradox' of very gradual diffusion of apparently cost-effective energy-conservation technologies. Our analysis provides some keys to understanding why this technology-diffusion process is gradual, and focuses attention on the factors that cause this to be the case, including those associated with potential market failures - information problems, principal/agent slippage, and unobserved costs - and those explanations that do not represent market failures - private information costs, high discount rates, and heterogeneity among potential adopters. Additionally, our analysis indicates how alternative policy instrument - both economic incentives and direct regulations - can hasten the diffusion of energy-conserving technologies.