Investment in Energy Efficiency by Small and Medium-Sized Firms: An Empirical Analysis of the Adoption of Process Improvement Recommendations.

We investigate the adoption of energy efficiency initiatives using information on over 100,000 recommendations provided to more than 13,000 small and medium sized firms under the Industrial Assessment Centers (IAC) program of the US Department of Energy (DOE). We build on an earlier study by Anderson and Newell (2004) that explored the impact of economic factors on the adoption of energy efficiency initiatives, by investigating the role of behavioral factors on the adoption of energy efficiency initiatives. Using a probit instrumental variable model, we investigate three behavioral factors that could affect investment in energy efficiency. First, we find that adoption of a recommendation depends not only on its characteristics but also on the order in which the recommendations are presented. Adoption rates are higher for initiatives appearing early in a list of recommendations. We find evidence that this may in part be due to anchoring effects. Second, we find that adoption is not influenced by the number of options provided to decision makers. Third, we find that adoption is higher for recommendations that need lower managerial effort. Additionally, we identify conditions under which these behavioral factors are mitigated. We draw implications for enhancing adoption of energy efficiency initiatives and for other decision contexts where a collection of process improvement recommendations are made to firms