Minimum Energy Efficiency Standards for Appliances: Old and New Economic Rationales

We revisit Hausman and Joskow (1982)’s economic rationales for appliance minimum energy efficiency standards. In addition to the four market failures they argued could justify appliance standards – energy prices below marginal social cost, consumers underestimating energy prices, consumer discount rates above social discount rates, and principal-agent problems – we discuss two additional market failures that are relevant and potentially economically important in this context: market power and innovation market failures. We highlight puzzles uncovered by recent empirical results, and suggest directions future research should take to better understand the normative implications of appliance standards.