The efficiency paradox: bureaucratic and organizational barriers to profitable energy-saving investments

The paradox of why profitable energy-saving investments are not undertaken continues to provoke debate. The underlying phenomenon might be called the 'efficiency paradox,' because it represents a case in which business firms, which are often presumed (or taken axiomatically) to be economically efficient, make decisions that do not maximize profits. New data from one of the US Environmental Protection Agency's voluntary pollution prevention programs enables this paradox to be explored statistically. The data show that both the level and variation in returns to lighting upgrade investments cannot be explained by standard economic models. Substantial gains in energy efficiency can be achieved without sacrificing profitability. Both economic and organizational factors account for some of the variation in observed returns to these investments, but the results suggest a need for improved and more comprehensive theories of the investment behavior of firms and other organizations. (C) 1998 Elsevier Science Ltd. All rights reserved.