IDEAS home Printed from
   My bibliography  Save this paper

Bridging the Energy Efficiency Gap: Insights for Policy from Economic Theory and Empirical Analysis


  • Gillingham, Kenneth
  • Palmer, Karen

    () (Resources for the Future)


The failure of consumers to make seemingly cost-effective investments in energy efficiency is commonly referred to as the energy efficiency gap. We review the most recent literature relevant to the energy efficiency gap and in particular discuss what the latest insights from behavioral economics might mean for the gap. We find that engineering studies may overestimate the size of the gap by failing to account for all costs and neglecting particular types of economic behavior. Nonetheless, empirical evidence suggests that market failures such as asymmetric information and agency problems affect efficiency decisions and contribute to the gap. Behavioral anomalies have been shown to affect economic decisionmaking in a variety of other contexts and are being increasingly cited as an explanation for the gap. The relative contributions of the various explanations for the gap differ across energy users and energy uses. This heterogeneity poses challenges for policymakers, but also could help elucidate when different policy interventions will most likely be cost-effective. If behavioral anomalies can be more cleanly linked to energy efficiency investments, then policymakers will face new challenges in performing welfare analysis of energy efficiency policies.

Suggested Citation

  • Gillingham, Kenneth & Palmer, Karen, 2013. "Bridging the Energy Efficiency Gap: Insights for Policy from Economic Theory and Empirical Analysis," Discussion Papers dp-13-02, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-13-02

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    2. Ignacio Palacios-Huerta & Oscar Volij, 2009. "Field Centipedes," American Economic Review, American Economic Association, vol. 99(4), pages 1619-1635, September.
    3. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 41-71.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Richard G. Newell & Juha Siikamäki, 2014. "Nudging Energy Efficiency Behavior: The Role of Information Labels," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(4), pages 555-598.
    2. Mauritzen, Johannes, 2015. "How price spikes can help overcome the energy efficiency gap," Economics Letters, Elsevier, vol. 134(C), pages 114-117.
    3. Reid, Sergey & Spence, David B., 2016. "Methodology for evaluating existing infrastructure and facilitating the diffusion of PEVs," Energy Policy, Elsevier, vol. 89(C), pages 1-10.
    4. Ramos, A. & Gago, A. & Labandeira, X. & Linares, P., 2015. "The role of information for energy efficiency in the residential sector," Energy Economics, Elsevier, vol. 52(S1), pages 17-29.
    5. Bardhan, Ashok & Jaffee, Dwight & Kroll, Cynthia & Wallace, Nancy, 2014. "Energy efficiency retrofits for U.S. housing: Removing the bottlenecks," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 45-60.
    6. David Bradford & Charles Courtemanche & Garth Heutel & Patrick McAlvanah & Christopher Ruhm, 2014. "Time Preferences and Consumer Behavior," NBER Working Papers 20320, National Bureau of Economic Research, Inc.
    7. Dumortier, Jerome & Siddiki, Saba & Carley, Sanya & Cisney, Joshua & Krause, Rachel M. & Lane, Bradley W. & Rupp, John A. & Graham, John D., 2015. "Effects of providing total cost of ownership information on consumers’ intent to purchase a hybrid or plug-in electric vehicle," Transportation Research Part A: Policy and Practice, Elsevier, vol. 72(C), pages 71-86.
    8. McConnell, Virginia, 2013. "The New CAFE Standards: Are They Enough on Their Own?," Discussion Papers dp-13-14, Resources For the Future.
    9. Burtraw, Dallas & Palmer, Karen L., 2013. "Mixing It Up: Power Sector Energy and Regional and Regulatory Climate Policies in the Presence of a Carbon Tax," Discussion Papers dp-13-09, Resources For the Future.
    10. Nauleau, Marie-Laure, 2014. "Free-riding on tax credits for home insulation in France: An econometric assessment using panel data," Energy Economics, Elsevier, vol. 46(C), pages 78-92.
    11. Kemal Sarıca & Wallace E. Tyner, 2016. "Economic Impacts of Increased U.S. Exports of Natural Gas: An Energy System Perspective," Energies, MDPI, Open Access Journal, vol. 9(6), pages 1-16, May.
    12. Anil Markandya & Xavier Labandeira & Ana Ramos, 2013. "Policy Instruments to Foster Energy Efficiency," Working Papers 01-2014, Economics for Energy.
    13. Dumortier, Jerome & Siddiki, Saba & Carley, Sanya & Cisney, Joshua & Krause, Rachel & Lane, Bradley & Rupp, John & Graham, John, 2015. "Effects of Life Cycle Cost Information Disclosure on the Purchase Decision of Hybrid and Plug-In Vehicles," IU SPEA AgEcon Papers 198643, Indiana University, IU School of Public and Environmental Affairs.

    More about this item


    energy efficiency; market failures; behavioral failures;

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-13-02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.