Split incentives, asymmetric information and energy efficiency subsidies

Abstract

We examine whether adverse selection due to asymmetric information reduces the cost-effectiveness of subsidy programs for energy efficiency investments. In 2009, the Flemish government introduced a reduction in the property tax for newly built houses whose energy efficiency level is below a specific threshold. We find that the response of houses built by a developer is four times smaller than the response of houses built by the owners themselves. This makes the program only half as cost-effective for developer-built housing. Additional data suggests information concerning the efficiency level of housing units was asymmetric between developers and buyers. It usually takes several years before the efficiency level is officially determined and it is not always correctly reported in listings.

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

JEL Classification: D82, H23, Q48, R31,