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Energy Policy: an Entrepreneurial Opportunity

by on February 24, 2012

Limited rationality or imperfect knowledge is not an excuse for state intervention. Information problems are an entrepreneurial opportunity. You are all entrepreneurs  and in the word of Charlie Sheen, taking the opportunities give to you, is “WINNING”.

Many economists believe that asymmetric information or “irrational” behaviour is a reason for government intervention. In most cases this is a fallacy.  This weekend I will be doing an “investment cost analysis” for a lecture on Energy Economics and Policy. My professor complains that many households do not take advantage of profitable energy saving, because they do not know about the possible savings (hence it is important for use to do investment cost analyses).  He said that a buyer takes certain costly steps before investing. He must take the sellers’ word that a technology is more efficient. A buyer could hire someone to analyse the product’s efficiency or the benefits of a renewable technology.

If this is mutually beneficial trade there is an alternative, the seller could signal the product’s advantages by opting for part of the efficiency gains. Sellers could offer to do an energy saving innovation in return for an option. The option could be the lowest of a fixed fee or a x% of the difference in energy usage in the following x years.

This is a typical example of Hayek’s use of knowledge. An entrepreneur who can use knowledge to his own advantage can make a profit. Economists should focus more on the process (the use of knowledge) and less false assumption of perfect information. In more cases than not finding an information problem, is finding a problem for entrepreneurs not the government to solve.

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