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Minimum prices and social interactions: Evidence from the German renewable energy program

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  • Inhoffen, Justus
  • Siemroth, Christoph
  • Zahn, Philipp

Abstract

Minimum prices above the competitive level can lead to allocative inefficiencies. We investigate whether this effect is more pronounced when decision makers are influenced by their social environment. Using data of minimum prices for renewable energy production in Germany, we test if individual decisions to install photovoltaic systems are affected by the investment decisions of others in the area. We implement a propensity score matching routine on municipality level and estimate that existing panels in the municipality increase the probability and number of further installations considerably, even in areas with minimal solar radiation. Thus, social interaction can add secondary inefficiencies to the known allocative problems of minimum prices. The social interaction effect is stronger in areas with more solar radiation and less unemployment. A larger number of existing systems and more concentrated installations increase the social effect further.

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  • Inhoffen, Justus & Siemroth, Christoph & Zahn, Philipp, 2019. "Minimum prices and social interactions: Evidence from the German renewable energy program," Energy Economics, Elsevier, vol. 78(C), pages 350-364.
    • Handle: RePEc:eee:eneeco:v:78:y:2019:i:c:p:350-364
    DOI: 10.1016/j.eneco.2018.11.034
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    3. Boqiang Lin & Huanyu Jia, 2023. "The role of peers in promoting energy conservation among Chinese university students," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-10, December.
    4. Sokołowski, Jakub, 2023. "Peer effects on photovoltaics (PV) adoption and air quality spillovers in Poland," Energy Economics, Elsevier, vol. 125(C).
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    7. Croonenbroeck, Carsten & Hennecke, David, 2020. "Does the German renewable energy act provide a fair incentive system for onshore wind power? — A simulation analysis," Energy Policy, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    Feed-in tariffs; Neighborhood effects; Peer effects; PV systems; Renewable energy; Solar energy; Subsidies;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • 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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