Asymmetric information in residential rental markets: Implications for the energy efficiency gap

Abstract

This paper explores whether energy cost information asymmetries exist between landlords and tenants by exploiting variation in which party pays for energy. Because tenants are always fully informed about their total housing costs in the landlord-pay regime, the effect of energy cost changes on tenant turnover, rents, and efficiency investment should differ between the two payment regimes under asymmetric information but not symmetric information. Using energy cost variation in the form of changes in relative heating fuel prices, I find evidence that tenants are uninformed about energy costs. This results in higher energy expenditures for tenants and implies that information campaigns or efficiency standards may improve market outcomes.