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

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  • Verboven, Frank
  • De Groote, Olivier

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.

Suggested Citation

  • Verboven, Frank & De Groote, Olivier, 2016. "Subsidies and Myopia in Technology Adoption: Evidence from Solar Photovoltaic Systems," CEPR Discussion Papers 11438, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11438
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    Cited by:

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    6. Øystein Daljord & Denis Nekipelov & Minjung Park, 2019. "Comments on “identification and semiparametric estimation of a finite horizon dynamic discrete choice model with a terminating action”," Quantitative Marketing and Economics (QME), Springer, vol. 17(4), pages 439-449, December.
    7. He, Chen & Klein, Tobias, 2018. "Advertising as a Reminder : Evidence from the Dutch State Lottery," Other publications TiSEM 0791692c-433c-4e8d-8374-a, Tilburg University, School of Economics and Management.
    8. He, Chen, 2018. "Essays on the role and effects of advertising," Other publications TiSEM 47a3272a-54f1-4a90-9714-c, Tilburg University, School of Economics and Management.
    9. Kalouptsidi, Myrto & Scott, Paul T. & Souza-Rodrigues, Eduardo, 2018. "Linear IV Regression Estimators for Structural Dynamic Discrete Choice Models," CEPR Discussion Papers 13240, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    Renewable energy technologies; Dynamic discrete choice; Myopia;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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