Conventional net present value calculations evaluating the profitability of investments in energy-saving technologies in Dutch horticultural outlays predict a much higher rate of adoption of these technologies than is actually observed. This paper tries to explain this gap by applying a real options framework. Hurdle rates for investments in two types of energy-saving technology are estimated using simulated future revenue streams, given uncertainty regarding energy prices and energy tax policies. Hurdle rates found in this way are on average about 1.76 times the hurdle rates that result from net present value calculations. Furthermore, this paper tests the predictive value of the theory by estimating a logit model. This model relates the incidence of having invested in an energy-saving technology to the difference between the return on investment and the hurdle rate. The predictive power turns out to be encouraging, as the statistical tests indicate that higher hurdle rates tend to reduce rates of technology adoption.
- efficiency paradox