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

Frank Verboven and Olivier De Groote

No 11438, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Renewable energy technologies; Dynamic discrete choice; Myopia (search for similar items in EconPapers)
JEL-codes: C51 Q48 Q58 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-dcm, nep-ene and nep-reg
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Citations: View citations in EconPapers (22)

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Working Paper: Subsidies and myopia in technology adoption: evidence from solar photovoltaic systems (2016)
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