Principal Agent Decision Case Study

2.1.1 (F) Principal-agent relationship

The principal-agent relationship barrier is the result of a lack of trust between parties at different echelons within an organization or business dealings. The business owner, who might not be adequately informed about the site-specific criterions for the EE investments, could demand quick payback rates/high hurdle rates on EE investment due to distrust in the manager’s capability to carry out such projects. This would result in neglect of cost effective EE investments (DeCanio 1993; Jaffe and Stavins, 1994).

2.1.1 (G) Adverse selection

Adverse selection could be understood as the difference in the knowledge between EE equipment manufacturers and the prospective buyers about the characteristics and

In almost all organizations there are multiple pressing issues which need immediate attention and resource diversion, as such the priority for EE programs would be pushed downwards. In many instances there is overwhelming evidence for lack of sharing the objectives and interest among parties in driving the message home. Many individuals had expressed concern over how the organizations had set out imperfect evaluation criteria for the EE programs. The examples of behavioral barriers are discussed

A study by Aronson and O’Leary (1983) on bathing in an university facility indicated that the number of undergraduates taking short, energy-saving baths went up from 6 percent if a notice encouraging a short bath was put up, to 19 percent when a compelling notice was used, to 49 percent when the researchers used an undergraduate to do a demonstration for others by always keeping the shower off while soaping up whenever someone came into the facility, and to 67 percent when two undergraduates serving as demonstrators were used (Aronsson and O’Leary, 1983). Coincidently, a lack of values related to EE may inhibit measures from adopting.

2.1.3 Organizational Barriers

Apart from economic and behavioral barriers, there are also barriers such as power and culture that emerge from organizational theory. Organizations are busy riding in promoting their brands on the new wave of globalization; this has caused a lack of time and diversified interests, as a result EE measures are left unattended. Sometimes lack of authority and complex decision chain also contribute to this barrier. These barriers are presented below.

2.1.3. (A) Power

Lack of power among EE decision-makers (e.g., the energy controllers), is often put forth as an explanatory variable for the “gap”. The low importance of energy management within organizations leads