ABSTRACT
The discussion begins with a brief overview of energy conservation issues, including its historical origins in the United States, We then proceed to discuss the economic rationale for energy conservation policies, which comes down to market failures and various behavioral factors. The market failure factors include externalities, imperfect information, and split incentives. The behavioral factors include high discount rates and limited attention. All of these factors combined have potentially resulted in many cost-beneficial energy-conserving investments not being undertaken, the so-called energy-efficiency gap. Economists disagree on the existence and extent of the energy-efficiency gap. The discussion then turns to two actual policies for energy conservation: fuel taxes and fuel economy standards. After describing each policy, we examine our actual experience with these policies and evaluate them in terms of economic efficiency. The chapter concludes with a discussion of social norms in encouraging energy conservation behavior, a topic that has received a lot of scholarly attention recently. The discussion here begins by distinguishing between descriptive norms and injunctive norms, each of which can have important effects on people’s behavior. It then turns to the question of why norms matter, but also why their influence appears to vary across issues and situations.
