Over a decade ago, Cameron and Quinn (1988) claimed that by exploring paradox, researchers might move beyond oversimplified and polarised notions to recognise the complexity, diversity, and ambiguity of organisational life.
Such benefits are a two-part paradox. The first element of this is that there is an enduring gap between the rate at which such efficiency opportunities should be implemented—as
gauged by economic theory—and actual practice (DeCanio, 1994, 1998; Gillingham et al., 2009; van Soest & Bulte, 2001). The gap is well documented with a wide range of publications addressing the topic (Shove, 1998; Thollander, Palm, & Rohdin, 2010; Weber, 20) However, the existence of such a paradox is not necessarily widely accepted (Gillingham & Palmer, 2014).
Economic theory struggles to explain the gap. For example, Diederen, Van Tongeren and Van Der Veen 2003) analyse a specific case using a hurdle rate – that is, assuming that people are unwilling to invest as they may believe that in doing so they miss out on other potential profitable opportunities. However, the hurdle rate only correctly models 6% of businesses that did not invest in such efficiency. Consequently, hurdle rates do not account for this gap (Diederen et al., 2003; Sanstad, Blumstein, & Stoft, 1995).
How people think they act, versus what can be measured in practice, is a second element of the paradox. Economically rational human behaviour should result in the adoption of energy efficiency actions at optimal rates and such rational behaviour does not occur Gillingham et al., 2009; van Soest & Bulte, 2001). This paradox manifests as the difference between polarised perspectives – that we will act on climate change mitigation if it is in our economic interest to do so – and actual behaviour observed from energy efficiency studies. Such an economically driven action perspective – we do not act on climate change as it is not in our economic interest to do so – is an established reason for the lack of action on sustainability or climate change issues. Stern 2007b) and Garnaut 2009), for example, highlight market failure, as the world’s ability to absorb carbon emissions is overused and using this resource is free. However, slow implementation of economically beneficial energy efficiency actions contradicts theory that humans behave in such a rational manner. Yet the assumption that we do act in this way dominates climate change discussions – a paradox as defined by Caprar et al., (2010 pp. 146-147).
For efficiency, Gillingham, Newell and Palmer (2009) analyse this paradox—defining it as a significant difference between the level of energy efficiency implementation we observe and what could be regarded as ‘socially optimal’. In seeking to understand this they argue from two perspectives: market and non-market failures. Market failures include the perception of cost and price, as well as more objective pricing and investment barriers. NonN market failures are those particularly related to individual and group actions—that is, behavioural failures.
Within such broad categories there are a range of theories and frameworks such as discount rates —a ‘discount’ on future cost savings and profits that is typically applied to investment decisions (Weitzman, 1998). The higher the rate, the less value placed on profitable future savings. For typical investments, this rate is approximately 5 to 10%. However, the implied discount rates for energy efficiency projects are estimated at 20% or more and continue upwards above 100% Gillingham et al., 2009; Jaffe & Stavins, 1994b; Sanstad et al., 2006).
These high discount rates are well beyond levels expected for such investments. This raises significant questions about the presence of other factors, such as substantial non-market behavioural influences. Soest and Bulte 2001) highlight this, saying that “the economic literature has difficulty explaining why firms don’t undertake profitable investments in energy saving”. Gillingham et al. 2009) are more direct—discussing behavioural economics and non-market barriers and arguing that “consumers are irrationally reluctant to move from the status quo” and “systematic biases may exist in consumer decisionmaking (sic)”. Stern (2007b p378) similarly notes that “consumers and firms frequently do not make energy efficiency investments that appear cost-effective”.
Consequently, the literature and analysis support considering objective factors such as discount rates and market forces), as well as subjective influences such as individual perspectives and organisational cultures) to explain and understand individual and society responses to energy efficiency. This paradox reflects the main lines of enquiry for this thesis N why do some organisations or groups act while others may not? For example, within the case example of energy efficiency, employees of the companies in this study describe success and failure that is not necessarily based on economics (see Chapters 4 and 5 of my PhD here>).