Managerial Biases And Energy Savings: An Empirical Analysis Of The Adoption Of Process Improvement Recommendations

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Executive Summary

The authors investigate the adoption and non-adoption of energy efficiency initiatives using a database of over 100,000 recommendations provided to more than 13,000 small and medium sized manufacturing firms. Even though the average payback across all recommendations is just over one year, many of these profitable opportunities are not implemented. Using a probit instrumental variable model, they identify four biases in the adoption of these recommendations. First, managers are myopic as they miss out on many profitable opportunities. Second, managers are more influenced by upfront costs than by net benefits when evaluating such initiatives. Third, adoption of a recommendation depends not only on its characteristics but also on the sequence in which the recommendations are presented.

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