We develop a framework for thinking about the 'paradox' of very gradua
l diffusion of apparently cost-effective energy-conservation technolog
ies. Our analysis provides some keys to understanding why this technol
ogy-diffusion process is gradual, and focuses attention on the factors
that cause this to be the case, including those associated with poten
tial market failures - information problems, principal/agent slippage,
and unobserved costs - and those explanations that do not represent m
arket failures - private information costs, high discount rates, and h
eterogeneity among potential adopters. Additionally, our analysis indi
cates how alternative policy instrument - both economic incentives and
direct regulations - can hasten the diffusion of energy-conserving te
chnologies.