IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v142y2025ics0140988325000052.html
   My bibliography  Save this article

Subsidy reduction policies in clean product promotion: Pre-announced or dynamic?

Author

Listed:
  • Wang, Jing
  • Lan, Yanfei
  • Xu, Shuxian
  • Zou, Hongyang
  • Du, Huibin

Abstract

Governments often use purchase subsidies to promote clean products, such as rooftop solar photovoltaic systems and new energy vehicles, aiming for clean development. However, purchase subsidies increase governments’ fiscal burden and create consumer over-reliance, with consumers delaying purchases in anticipation of higher future subsidies. To reduce policy costs and lessen consumers’ delayed purchases, governments attempt to implement a subsidy reduction policy that gradually reduces subsidy levels, with two options: pre-announced subsidy reduction (PS, where future subsidy plans are pre-announced) and dynamic subsidy reduction (DS, where governments announce a downward trend but adjust subsidy levels dynamically). We employ a two-period Stackelberg game model to investigate the optimal policy for promoting clean products. Both PS and DS alleviate delayed purchases, but the government’s subsidy strategies differ. Under PS, the government adopts a consistent subsidy strategy or follows a decreasing subsidy path, which lessens fiscal costs but at the expense of total sales of clean products. In contrast, under DS, the government maintains a consistent subsidy level over two periods, which rather increases the total adoption of clean products and contradicts the intuition that dynamic subsidy setting is meant for maintaining policy flexibility. Moreover, our comprehensive comparisons reveal a policy choice dilemma: the government should choose PS to prevent delayed purchases but DS to enhance the adoption of clean products. We suggest choosing the appropriate approach based on the market penetration of clean products: PS seems more favorable when sales of clean products are sufficiently high, while the opposite is true for DS.

Suggested Citation

  • Wang, Jing & Lan, Yanfei & Xu, Shuxian & Zou, Hongyang & Du, Huibin, 2025. "Subsidy reduction policies in clean product promotion: Pre-announced or dynamic?," Energy Economics, Elsevier, vol. 142(C).
  • Handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000052
    DOI: 10.1016/j.eneco.2025.108182
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325000052
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.eneco.2025.108182?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Olivier De Groote & Frank Verboven, 2019. "Subsidies and Time Discounting in New Technology Adoption: Evidence from Solar Photovoltaic Systems," American Economic Review, American Economic Association, vol. 109(6), pages 2137-2172, June.
    2. Shadi Goodarzi & Sam Aflaki & Andrea Masini, 2019. "Optimal Feed‐In Tariff Policies: The Impact of Market Structure and Technology Characteristics," Production and Operations Management, Production and Operations Management Society, vol. 28(5), pages 1108-1128, May.
    3. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    4. Volodymyr Babich & Ruben Lobel & Şafak Yücel, 2020. "Promoting Solar Panel Investments: Feed-in-Tariff vs. Tax-Rebate Policies," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1148-1164, November.
    5. Gu, Wei & Luan, Xiaoting & Song, Yanan & Shang, Jennifer, 2022. "Impact of loyalty program investment on firm performance: Seasonal products with strategic customers," European Journal of Operational Research, Elsevier, vol. 299(2), pages 621-630.
    6. Gordon T. Kraft-Todd & Bryan Bollinger & Kenneth Gillingham & Stefan Lamp & David G. Rand, 2018. "Credibility-enhancing displays promote the provision of non-normative public goods," Nature, Nature, vol. 563(7730), pages 245-248, November.
    7. Jiayi Joey Yu & Christopher S. Tang & Zuo-Jun Max Shen, 2018. "Improving Consumer Welfare and Manufacturer Profit via Government Subsidy Programs: Subsidizing Consumers or Manufacturers?," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 752-766, October.
    8. Brozynski, Max T. & Leibowicz, Benjamin D., 2022. "A multi-level optimization model of infrastructure-dependent technology adoption: Overcoming the chicken-and-egg problem," European Journal of Operational Research, Elsevier, vol. 300(2), pages 755-770.
    9. Sheldon, Tamara L. & Dua, Rubal & Alharbi, Omar Abdullah, 2023. "Electric vehicle subsidies: Time to accelerate or pump the brakes?," Energy Economics, Elsevier, vol. 120(C).
    10. Qiu, Ruozhen & Sun, Yue & Zhou, Hongcheng & Sun, Minghe, 2023. "Dynamic pricing and quick response of a retailer in the presence of strategic consumers: A distributionally robust optimization approach," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1270-1298.
    11. Zolfagharinia, Hossein & Zangiabadi, Maryam & Hafezi, Maryam, 2023. "How much is enough? Government subsidies in supporting green product development," European Journal of Operational Research, Elsevier, vol. 309(3), pages 1316-1333.
    12. Luo, Jinjing & Moschini, GianCarlo, 2019. "Pass-through of the policy-induced E85 subsidy: Insights from Hotelling's model," Energy Economics, Elsevier, vol. 84(C).
    13. Maxime C. Cohen & Ruben Lobel & Georgia Perakis, 2016. "The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption," Management Science, INFORMS, vol. 62(5), pages 1235-1258, May.
    14. Mustafa O. Kabul & Ali K. Parlaktürk, 2019. "The Value of Commitments When Selling to Strategic Consumers: A Supply Chain Perspective," Management Science, INFORMS, vol. 65(10), pages 4754-4770, October.
    15. Ashley Langer & Derek Lemoine, 2022. "Designing Dynamic Subsidies to Spur Adoption of New Technologies," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(6), pages 1197-1234.
    16. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    17. Xiaolong Guo & Lihong Cheng & Yugang Yu, 2022. "Government subsidy policy for green and efficient raw materials considering farmer heterogeneity," Production and Operations Management, Production and Operations Management Society, vol. 31(11), pages 4095-4112, November.
    18. Bryan Bollinger & Kenneth Gillingham, 2012. "Peer Effects in the Diffusion of Solar Photovoltaic Panels," Marketing Science, INFORMS, vol. 31(6), pages 900-912, November.
    19. Yossi Aviv & Mike Mingcheng Wei & Fuqiang Zhang, 2019. "Responsive Pricing of Fashion Products: The Effects of Demand Learning and Strategic Consumer Behavior," Management Science, INFORMS, vol. 65(7), pages 2982-3000, July.
    20. Rode, Johannes & Weber, Alexander, 2016. "Does localized imitation drive technology adoption? A case study on rooftop photovoltaic systems in Germany," Journal of Environmental Economics and Management, Elsevier, vol. 78(C), pages 38-48.
    21. Li, Zhimin & Pan, Yanchun & Yang, Wen & Ma, Jianhua & Zhou, Ming, 2021. "Effects of government subsidies on green technology investment and green marketing coordination of supply chain under the cap-and-trade mechanism," Energy Economics, Elsevier, vol. 101(C).
    22. Mike Mingcheng Wei & Fuqiang Zhang, 2018. "Advance Selling to Strategic Consumers: Preorder Contingent Production Strategy with Advance Selling Target," Production and Operations Management, Production and Operations Management Society, vol. 27(7), pages 1221-1235, July.
    23. Lingling Shi & Suresh P. Sethi & Metin Çakanyıldırım, 2022. "Promoting electric vehicles: Reducing charging inconvenience and price via station and consumer subsidies," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4333-4350, December.
    24. Terry A. Taylor & Wenqiang Xiao, 2014. "Subsidizing the Distribution Channel: Donor Funding to Improve the Availability of Malaria Drugs," Management Science, INFORMS, vol. 60(10), pages 2461-2477, October.
    25. Terry A. Taylor & Wenqiang Xiao, 2019. "Donor Product‐Subsidies to Increase Consumption: Implications of Consumer Awareness and Profit‐Maximizing Intermediaries," Production and Operations Management, Production and Operations Management Society, vol. 28(7), pages 1757-1772, July.
    26. So Yeon Chun & Anton Ovchinnikov, 2019. "Strategic Consumers, Revenue Management, and the Design of Loyalty Programs," Management Science, INFORMS, vol. 65(9), pages 3969-3987, September.
    27. Rode, Johannes & Weber, Alexander, 2016. "Does localized imitation drive technology adoption? A case study on rooftop photovoltaic systems in Germany," Journal of Environmental Economics and Management, Elsevier, vol. 78(C), pages 38-48.
    28. Wei Zhang & Yifan Dou, 2022. "Coping with Spatial Mismatch: Subsidy Design for Electric Vehicle and Charging Markets," Manufacturing & Service Operations Management, INFORMS, vol. 24(3), pages 1595-1610, May.
    29. Nancy L. Stokey, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 355-371.
    30. Moz-Christofoletti, Maria Alice & Pereda, Paula Carvalho, 2021. "Distributional welfare and emission effects of energy tax policies in Brazil," Energy Economics, Elsevier, vol. 104(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carattini, Stefano & Gillingham, Kenneth & Meng, Xiangyu & Yoeli, Erez, 2024. "Peer-to-peer solar and social rewards: Evidence from a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 340-370.
    2. Stefan Lamp, 2023. "Sunspots That Matter: The Effect of Weather on Solar Technology Adoption," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(4), pages 1179-1219, April.
    3. Carattini, Stefano & Figge, Béla & Gordan, Alexander & Löschel, Andreas, 2024. "Municipal building codes and the adoption of solar photovoltaics," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    4. Best, Rohan & Burke, Paul J., 2023. "Small-scale solar panel adoption by the non-residential sector: The effects of national and targeted policies in Australia," Economic Modelling, Elsevier, vol. 120(C).
    5. Zhou, Jiayu & Li, Yina & Ye, Fei & Zhao, Xiande & Tong, Yang & Guo, Hangfei, 2024. "Single rollover or dual rollover: How a monopoly NEV manufacturer responds to NEV credit policy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 191(C).
    6. Germeshausen, Robert, 2016. "Effects of Attribute-Based Regulation on Technology Adoption - The Case of Feed-In Tariffs for Solar Photovoltaic," VfS Annual Conference 2016 (Augsburg): Demographic Change 145712, Verein für Socialpolitik / German Economic Association.
    7. Liu, Hengyu & Zheng, Kai, 2024. "Analysis of the Chinese government's subsidy programs to restore the pork supply chain: The case of African swine fever," Omega, Elsevier, vol. 124(C).
    8. Arnold, Fabian & Jeddi, Samir & Sitzmann, Amelie, 2022. "How prices guide investment decisions under net purchasing — An empirical analysis on the impact of network tariffs on residential PV," Energy Economics, Elsevier, vol. 112(C).
    9. Guangrui Ma & Michael K. Lim & Ho-Yin Mak & Zhixi Wan, 2019. "Promoting Clean Technology Adoption: To Subsidize Products or Service Infrastructure?Abstract: We study the dynamic adoption process of clean-technology products (e.g., electric vehicles and solar pho," Service Science, INFORMS, vol. 11(2), pages 75-95, June.
    10. Yang Xia & Yang Hui & Huang Hongfu & Zhu Siyuan & Yu Qingling, 2025. "Low‐carbon supplier selection in the presence of government subsidy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(1), pages 183-200, January.
    11. Klein, Martin & Deissenroth, Marc, 2017. "When do households invest in solar photovoltaics? An application of prospect theory," Energy Policy, Elsevier, vol. 109(C), pages 270-278.
    12. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 333-349, June.
    13. Mason, Robin, 2000. "Network externalities and the Coase conjecture," European Economic Review, Elsevier, vol. 44(10), pages 1981-1992, December.
    14. Rode, Johannes & Müller, Sven, 2016. "Spatio-Temporal Variation in Peer Effects - The Case of Rooftop Photovoltaic Systems in Germany," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 84765, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    15. Guo, Qiaozhen & He, Qiao-Chu & Chen, Ying-Ju & Huang, Wei, 2021. "Poverty mitigation via solar panel adoption: Smart contracts and targeted subsidy design," Omega, Elsevier, vol. 102(C).
    16. Lan, Haifeng & Gou, Zhonghua & Lu, Yi, 2021. "Machine learning approach to understand regional disparity of residential solar adoption in Australia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 136(C).
    17. Gabriel S. Sampson & Edward D. Perry, 2019. "Peer effects in the diffusion of water‐saving agricultural technologies," Agricultural Economics, International Association of Agricultural Economists, vol. 50(6), pages 693-706, November.
    18. Coury, Tarek & Petkov, Vladimir P., 2008. "Delegation and commitment in durable goods monopolies," Games and Economic Behavior, Elsevier, vol. 63(1), pages 41-55, May.
    19. Paul Simshauser & Tim Nelson & Joel Gilmore, 2022. "The sunshine state: implications from mass rooftop solar PV take-up rates in Queensland," Working Papers EPRG2219, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    20. Fabian Scheller & Isabel Doser & Emily Schulte & Simon Johanning & Russell McKenna & Thomas Bruckner, 2021. "Stakeholder dynamics in residential solar energy adoption: findings from focus group discussions in Germany," Papers 2104.14240, arXiv.org.

    More about this item

    Keywords

    Purchase subsidy; Subsidy reduction policy; Delayed purchases; Clean development;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000052. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.