Abstract:
Informational market failures have been faulted as one reason why unproductive firms do not adopt profitable technologies, and energy-saving technologies in particular. This paper studies whether such informational market failures reduce the energy-efficiency of Indian manufacturing plants using a large randomized-controlled trial that offers information, via industrial energy audits, and skilled labor, via continuing energy consultancy, to encourage energy-efficiency investments. Energy audits project the returns to energy-efficiency to be very high, forecasting total savings of ten percent of plant energy bills on a collection of small investments. I find that, despite these projections, energy audit treatment plants invest marginally and insignificantly more than control plants and far less than was forecast to be profitable. This investment appears to slightly increase plant physical efficiency, as measured in independent technical surveys, and treatment plants increase capacity utilization in response. Consistent with this increase in use, electricity demand temporarily and insignificantly declines in the treatment, then rebounds to the control level. Treatment plants are estimated not to have significantly lower prices than control plants at endline, suggesting that modest efficiency gains did not reach output markets. The overall pattern of low adoption is consistent with ancillary fixed costs of adoption that make small-scale but seemingly high return investments unprofitable.