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Renewable energy price-control policy in the presence of innovation: is government pre-commitment preferable?

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  • Madlener, Reinhard
  • Neustadt, Ilja

Abstract

In a perfectly competitive market with a possibility of technological innovation we analyze guaranteed feed-in tariffs for electricity from renewables from a dynamic efficiency and social welfare point of view. Specifically, we model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. We find that in terms of dynamic efficiency no pre-commitment policies are shown to be at least as good as the pre-commitment ones. Thus, a government with a preference for innovation being performed if the achievable cost reduction is high should be in favor of the no pre-commitment regime.

Suggested Citation

  • Madlener, Reinhard & Neustadt, Ilja, 2018. "Renewable energy price-control policy in the presence of innovation: is government pre-commitment preferable?," MPRA Paper 91546, University Library of Munich, Germany, revised 19 Jan 2019.
    • Handle: RePEc:pra:mprapa:91546
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    References listed on IDEAS

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    JEL classification:

    • 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

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