Reducing ‘Search Cost’ and Risk in Energy-efficiency Investments: Two Success Stories

This paper focuses on two compelling arguments made in the literature regarding the efficiency gap: first, that consumers face significant transaction costs related to searching for and analyzing information on prospective energy-saving investments; and second, that even well-informed consumers still rationally perceive substantial risks -higher risks than with most financial investments - in making these purchases. Two case studies of efforts to promote governmental energy-efficiency investment are presented. One is a volume-purchase of LED traffic lights by the city of Philadelphia, and the other an information dissemination program aimed at federal purchasers by the U.S. Department of Energy's Federal Energy Management Program. This paper asserts that these programs have been successful because they reduce the two market barriers of high "search cost" and high perceived risks.