Mandatory Energy Efficiency Disclosure in Housing Markets

Mandatory disclosure policies are implemented broadly despite sparse evidence that they improve market outcomes. The paper presented in this Decarbonization Seminar studies the effects of requiring home sellers to provide buyers with certified audits of residential energy efficiency. Using similar nearby homes as a comparison group, the authors find this requirement increases price premiums for energy efficiency and encourages energy-saving investments. They additionally present evidence highlighting the market failure – incomplete information by both buyers and sellers – that prevents widespread voluntary disclosure of energy efficiency in housing transactions. The findings support that disclosure policies can improve market outcomes in settings with symmetrically incomplete information.