Andrius Kazukauskas

A rather large literature argues that firms and households do not always improve energy efficiency by investing in new technology even if it would be cost effective to do so. In this paper, we review the theoretical and empirical literature on the so called energy efficiency gap and provide a rationale for policymakers to act to improve energy efficiency. By eliminating market failures, welfare can be improved in a broad sense, including both environmental quality and material welfare. We also discuss social 'nudges' as examples of policy instruments that do not directly target any market failure in energy markets but that still may have a significant impact on energy use. Although we acknowledge the existence of the energy efficiency gap, we argue that the gap in general is overestimated as parts of it can be explained by heterogeneity in preferences and thus explained by rational choices.

The recent reform of the Common Agricultural Policy, which decouples farm subsidies from production, is expected to impact on farmers' production decisions. We perform a cross‐country farm‐level empirical analysis of farmers' production responses to these reforms using a panel dataset for the EU15 countries for the period 2001–2007. We apply quasi‐experimental empirical methods and find that the probability of a farm disinvesting decreased due to the policy change for most farms. However, the policy change facilitated exit for farms engaged in livestock production and those that were already in the process of leaving the sector.