A conventional way to think about energy use in organizations is to treat organizations as simple, self-interested rational actors. The most common assumption about the private sector is that firms attempt to maximize profits. In the public sector, the most common assumption is that agencies try to maximize size or political support. In this view, energy decisions are like any other organizational decisions: energy conservation will occur when the expected costs of conservation are less than the expected gains to be realized. It is assumed that firms will invest in energy efficiency when it is profitable and that agencies will invest in energy efficiency when it contributes more than it costs for organizational growth.

The hypothesis that organizations are rational actors is useful for predicting and interpreting organizational behavior in the aggregate. According to the hypothesis, an increase in the cost of energy for industrial firms, without a comparable increase in the cost of more energy-efficient equipment, will increase the total industrial investment in such equipment. Similarly, an increase in the cost of energy for public agencies, without comparable increases in total budgets, will increase the agencies’ investment in energy efficiency. Aggregate statistics, as well as numerous case reports, do document that organizations, as a group, are responsive to substantial shifts in energy costs. In particular, major increases in the price of energy and incentives in the tax system have produced organizational response. For example, Hsu (1979) found that the expected payback period was an important factor influencing the adoption of energy-conserving technologies. Behavioral research suggests, however, that as with individuals, aggregate statistics about industry or government conceal considerable variation.

Energy use among firms and among agencies varies in ways that may be due to systematic features of organizational structure and behavior. In particular, studies of organizational decision making identify two major features of organizations that affect the fit of a simple rational view to their actions. First, an organization is not a single actor with a single objective, but a collection of actors with potentially conflicting objectives. Although the existence of an organization suggests some mutual gains from cooperation, not all issues of conflict are resolved by explicit or implicit contracts among the actors. The interests of one department or employee may conflict with the interests of others, and those conflicts affect the way in which an organization makes decisions. For example, workers with innovative ideas for changes in technology often require the acquiescence, or even collaboration, of managers and others in order to implement the change.

Second, organizations, like individuals, do not act on the basis of complete and precise information, but respond in a confusing world of vague, amorphous stimuli, unclear consequences, and ambiguous goals. Rational action is based on two assumptions about the future: one about the probable

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