select heating and cooling equipment and built-in appliances for new homes or rental units. Other intermediaries limit choice indirectly. Owners of existing rental buildings, for example, make it difficult for occupants who pay for heat to lower their heating bills because the occupants are unlikely to make investments to improve the operating efficiency of someone else’s property. Household energy use is also constrained by the past actions of local governments, which decide what transit services to provide and where to allow stores and work places to be built. Standard-setting organizations affect energy use by others when they set requirements for manufacturing products such as heaters, and for constructing buildings.

Manufacturers of Consumer Products

Energy users have limited control over the assortment of energy-using products from which they can choose. While lack of consumer interest can guarantee the failure of a product, consumer interest cannot guarantee that a new product will be manufactured. The producers have the initiative, and producers do not necessarily profit by marketing energy-saving products. In the home appliance market, for example, highly energy-efficient products are usually more costly to produce because of the extra materials needed to provide insulation and to make more energy-efficient motors. Some people would purchase such appliances despite the added initial cost. But without expensive advertising to educate energy users, a manufacturer who chooses to produce an efficient appliance might well lose the market to the manufacturer of an inefficient machine with a lower price tag.7 Because consumer preferences for energy efficiency cannot reliably be expected to induce manufacturers to produce efficient equipment, government programs have recently required energy efficiency labels to be attached to major household appliances. The rationale for this approach is that a mandated program to educate purchasers about the lifetime costs of owning and operating appliances will make consumer preferences more effective in the market.

But even with some knowledge about the energy cost of a product, consumer preferences for efficient equipment are not easily translated into the manufacture of such products. Producers may seek less expensive alternatives to filling consumer desires. In 1979, when motorists became concerned about gasoline shortages and began to demand more fuel-efficient vehicles, one response by U.S. manufacturers was to advertise large cars by emphasizing their ability to get many miles per tankful; of course, these ads downplayed the size of the tank. Another response was to hold down the prices of large models so that advertising could truthfully show that even though a large car costs more to run, it is noticeably cheaper over its useful life than some small, more fuel-efficient, but higher-priced models.

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