Abstract
The ongoing debate about the so-called paradox of gradual diffusion of apparently cost-effective energy-conservation technologies is becoming more relevant in the context of concerns about CO2 emissions and global climate change policy. The authors incorporate major explanations of the paradox in a model of the decision problem faced by home builders regarding the adoption of specific energy-conserving attributes in new single-family residences. They estimate the parameters of the model with state-level panel data from a national survey for the period 1979-1988. Allowing for unobserved state-specific effects, they find very small dynamic feedback effects from past adoption of high efficiency levels, thus providing no evidence of large adoption externalities. Although they find that state building codes had no discernable impact on technology adoption, they find that builders responded significantly to economic incentives in the form of changes in costs of technology adoption and changes in energy prices. Interestingly, the apparent responsiveness to changes in technology costs is significantly larger than the responsiveness to changes in energy prices, which is inconsistent with standard benefit-cost analysis. Thus, in a model that incorporates major explanations of the observed energy paradox, the authors are left with a new version of the puzzle.