Split incentives, asymmetric information and energy efficiency subsidies

Abstract

We examine whether agency issues due to asymmetric information affect the cost-effectiveness of subsidy programs for energy efficiency investments. In 2009, the Flemish government introduced a reduction in the property tax of 20% to 40% for energy efficient houses. Exploiting the notch to identify the effect on energy use, we find that the cost per kWh saved is two to seven times larger for developer-built housing units than owner-built units. The difference in the cost-effectiveness is the result of a ten times smaller response in the developer-buyer regime. A counterfactual exercise suggests that the cost-effectiveness improves 33% when information is perfect.

Keywords: Split incentives, asymmetric information, energy efficiency, subsidies

JEL Classification: D82, H23, Q48, R31,