The effect of public policies on technological change may be among the most important determinants of success in environmental protection. Researchers will develop and use a new framework for analyzing the diffusion of environmentally desirable technology. They will compare quantitatively the effectiveness of direct regulation as alternatives to economic incentives in fostering adoption of technologies conserving energy. The dynamic model of individual decisions leads to necessary conditions that can be aggregated into a model to be econometrically estimated with aggregate data taking into account unobserved heterogeneity among households. Based upon econometric estimates, simulations will be employed to examine the implications of alternative policy mechanisms.