Learning to LEED: Competition, Spillovers, and Market Transformation in the Built Environment
Presented by Dan Matisoff, Associate Professor at Georgia Tech.
Drawing upon recent research on voluntary environmental programs, we develop theory about the role that participation in eco-certification programs can catalyze a race to the top while generating positive spillover effects to non-participants in the program. The informational value of pilot projects may be understated when pilot project stakeholders and non-participants interact in social and economic networks. We study the mechanisms linking experimentation in the form of pilot projects, social learning, and technology adoption in the green building market. We develop a stylized theoretical model of green building investment that suggests pilot projects may serve a pivotal role in catalyzing early diffusion of technologies if firms can monetize previous building experience to reduce future investment costs. We test the model of the impact of pilot projects using adoption data from the Leadership in Energy and Environmental Design (LEED) green building standard. Using a difference-in-difference-in-differences empirical model, we find areas treated with pilot projects are associated with a doubling of green building investment relative to control areas. In addition to an effect on local investment, we find evidence that pilot projects play a significant role in catalyzing spatial diffusion and reducing investment costs of future projects. Taken together, our study informs policy on the importance of experimentation in early market development periods to promote organizational learning and catalyze early adoption of an emerging technology.