Energy Efficiency in Small and Medium-Sized Manufacturing Firms:Order Effects and the Adoption of Process Improvement Recommendations
Suresh Muthulingam, Cornell University, Johnson School of
Management
Charles Corbett, UCLA Anderson School of Management
Shlomo Benartzi, UCLA Anderson School of Management
Bohdan Oppenheim, Loyola Marymount University
Abstract
In
many manufacturing operations, profitable energy efficiency opportunities
remain unexploited. While previous studies have tried to explain the
underinvestment, we focus on how the way in which a portfolio of opportunities
is presented in a list affects adoption decisions. We use information on over
100,000 energy saving recommendations made to more than 13,000 small and
medium-sized manufacturing firms under the Industrial Assessment Centers (IAC)
program of the US Department of Energy (DOE).We find that adoption rates are
higher for initiatives appearing early in a list of recommendations. This
sequence effect is surprisingly consistent and large: simply moving a
recommendation one position lower, at the mid-point of a list, has the same
effect on average as increasing upfront implementation cost by at least 17%
from the average value. Given this impact of sequence on adoption of individual
recommendations, we utilize variations within our data to examine how various
sequencing approaches affect adoption at the portfolio level. Sequences in
which recommendations are listed from best to worst payback achieve higher
potential energy savings given the investments in energy efficiency made by the
firms. We also observe a choice overload effect at the portfolio level, but the
magnitude of this effect is small.
