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Designing Dynamic Subsidies to Spur Adoption of New Technologies


  • Ashley Langer
  • Derek Lemoine


We analyze the efficient subsidy for durable good technologies. We theoretically demonstrate that a policymaker faces a tension between intertemporally price discriminating by designing a subsidy that increases over time and taking advantage of future technological progress by designing a subsidy that decreases over time. Using dynamic estimates of household preferences for residential solar in California, we show that the efficient subsidy increases over time. The regulator's spending quintuples when households anticipate future technological progress and future subsidies.

Suggested Citation

  • Ashley Langer & Derek Lemoine, 2018. "Designing Dynamic Subsidies to Spur Adoption of New Technologies," NBER Working Papers 24310, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24310
    Note: EEE PE

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    Cited by:

    1. Hitaj, Claudia & Löschel, Andreas, 2019. "The impact of a feed-in tariff on wind power development in Germany," Resource and Energy Economics, Elsevier, vol. 57(C), pages 18-35.
    2. Yihong Ding & Kelvin Balcombe & Elizabeth Robinson, 2021. "Time discounting and implications for Chinese farmer responses to an upward trend in precipitation," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(3), pages 916-930, September.
    3. Eslami, Hossein & Krishnan, Trichy, 2023. "New sustainable product adoption: The role of economic and social factors," Energy Policy, Elsevier, vol. 183(C).
    4. Brown, David P. & Muehlenbachs, Lucija, 2023. "The Value of Electricity Reliability: Evidence from Battery Adoption," Working Papers 2023-5, University of Alberta, Department of Economics.
    5. Fabian Feger & Nicola Pavanini & Doina Radulescu, 2022. "Welfare and Redistribution in Residential Electricity Markets with Solar Power [Residential Consumption of Gas and Electricity in the US: The Role of Prices and Income]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3267-3302.
    6. 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.
    7. Olivier De Groote & Axel Gautier & Frank Verboven, 2020. "The political economic of financing climate policy : evidence from the solar PV subsidy programs," Working Paper Research 389, National Bank of Belgium.
    8. Adão, Bernardino & Narajabad, Borghan & Temzelides, Ted, 2024. "Renewable technology adoption costs and economic growth," Energy Economics, Elsevier, vol. 129(C).
    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. Dimanchev, Emil & Fleten, Stein-Erik & MacKenzie, Don & Korpås, Magnus, 2023. "Accelerating electric vehicle charging investments: A real options approach to policy design," Energy Policy, Elsevier, vol. 181(C).
    11. Linn, Joshua, 2022. "Balancing Equity and Effectiveness for Electric Vehicle Subsidies," RFF Working Paper Series 22-07, Resources for the Future.
    12. Jeffrey T. Macher & Nathan H. Miller & Matthew Osborne, 2021. "Finding Mr. Schumpeter: technology adoption in the cement industry," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 78-99, March.
    13. Lohawala, Nafisa, 2023. "Roadblock or Accelerator? The Effect of Electric Vehicle Subsidy Elimination," RFF Working Paper Series 23-13, Resources for the Future.
    14. Xing, Jianwei & Leard, Benjamin & Li, Shanjun, 2021. "What does an electric vehicle replace?," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    15. Bryan Bollinger & Naim Darghouth & Kenneth Gillingham & Andres Gonzalez-Lira, 2023. "Valuing Technology Complementarities: Rooftop Solar and Energy Storage," NBER Working Papers 32003, National Bureau of Economic Research, Inc.
    16. Mark Colas & Emmett Saulnier, 2023. "Optimal Subsidies for Residential Solar," CESifo Working Paper Series 10446, CESifo.
    17. Wu, Tong & Lawell, C.Y. Cynthia Lin & Just, David R. & Zhao, Jiancheng & Fei, Zhangjun & Wei, Qiang, 2022. "Optimal Forest Management for Interdependent Products: A Nested Dynamic Bioeconomic Model and Application to Bamboo," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322164, Agricultural and Applied Economics Association.
    18. Abajian, Alexander & Pretnar, Nick, 2023. "Subsidies for Close Substitutes: Evidence from Residential Solar Systems," MPRA Paper 118171, University Library of Munich, Germany.
    19. Sears, Louis S. & Lin Lawell, C.-Y. Cynthia & Walter, M. Todd, 2020. "Groundwater Under Open Access: A Structural Model of the Dynamic Common Pool Extraction Game," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304276, Agricultural and Applied Economics Association.
    20. Kenta Tanaka & Clevo Wilson & Shunsuke Managi, 2022. "Impact of feed-in tariffs on electricity consumption," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(1), pages 49-72, January.
    21. Sébastien Houde & Wenjun Wang, 2022. "The Incidence of the U.S.-China Solar Trade War," CER-ETH Economics working paper series 22/372, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    22. Gosnell, Greer & McCoy, Daire, 2023. "Market failures and willingness to accept smart meters: Experimental evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    23. Kheiravar, Khaled H, 2019. "Economic and Econometric Analyses of the World Petroleum Industry, Energy Subsidies, and Air Pollution," Institute of Transportation Studies, Working Paper Series qt3gj151w9, Institute of Transportation Studies, UC Davis.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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