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Title: Subsidies and Myopia in Technology Adoption: Evidence from Solar Photovoltaic Systems

Author(s): Olivier De Groote and Frank Verboven

Publication Date: August 2016

Keyword(s): dynamic discrete choice, myopia and renewable energy technologies

Programme Area(s): Industrial Organization

Abstract: Many countries have relied on subsidies to promote the adoption of renewable energy technologies. We study a generous program to promote the adoption of solar photovoltaic (PV) systems through subsidies on future electricity production, rather than through upfront investment subsidies. We develop and estimate a tractable dynamic model of technology adoption, also accounting for local market heterogeneity. We exploit rich variation at pre-announced dates in the future production subsidies. Although the program led to a massive adoption, we find that households significantly undervalued the future benefits from the new technology. This implies that an upfront investment subsidy program would have promoted the technology at a much lower budgetary cost, so that the government essentially shifted the subsidy burden to future generations of electricity consumers.

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Bibliographic Reference

De Groote, O and Verboven, F. 2016. 'Subsidies and Myopia in Technology Adoption: Evidence from Solar Photovoltaic Systems'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11438