DP11438 Subsidies and Myopia in Technology Adoption: Evidence from Solar Photovoltaic Systems
|Author(s):||Olivier De Groote, Frank Verboven|
|Publication Date:||August 2016|
|Keyword(s):||dynamic discrete choice, myopia, renewable energy technologies|
|JEL(s):||C51, Q48, Q58|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11438|
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.