I always have trouble explaining the value of environmentally-sound policies in non-AP economics. Especially as presented in the texts, environmentalism looks like an externally imposed cost. The possibility that conserving resources might also conserve money — or make money, as one corporation I advised did — doesn’t jump out of the supply-demand equations.
So I admire anyone who can explain these issues in serious economic terms.
Common Tragedies explains why landlords and tenants miss great opportunities to save money, in explaining why a third party sees an business opportunity in getting office and warehouse landlords to make their buildings greener. Basically, it is an asymmetry of information, or lack of information on the part of the owners and lessees.
Market failures:
The first paragraph indicates that there is a knowledge problem, or asymmetric information: building owners don’t have the same specialized knowledge that the energy auditors presumably do.
The second paragraph makes it sound like building owners don’t have as ready access to capital as the investors. Although it isn’t clear from the article whether this is the case here, many times in building management the use of energy is troubled by principal-agent problems. A classic example is a landlord and tenant: the landlord has access to capital but lacks a day-to-day incentive to save energy, while the tenant would like to save energy but lacks a long-term incentive to make capital investments to do so.
Common Tragedies looks like a good source for real-world examples of economic problems. Don’t miss the “Friday Beer Post,” ripe with warm-up exercise possiblities all it’s own ( “Assume 40 million U.S. families keep a second fridge in the garage . . .”)
( “Common Tragedies” is a play on the title of Garrett Hardin’s 1968 essay, “Tragedy of the Commons,” I suppose?)
Spread the word; friends don't allow friends to repeat history.
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Posted by Ed Darrell 
Millard Fillmore's Bathtub 