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

Justus Inhoffen, Christoph Siemroth and Philipp Zahn

Energy Economics, 2019, vol. 78, issue C, 350-364

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.

Keywords: Feed-in tariffs; Neighborhood effects; Peer effects; PV systems; Renewable energy; Solar energy; Subsidies (search for similar items in EconPapers)
JEL-codes: H23 L14 Q42 Q48 Q58 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Does social interaction make bad policies even worse? Evidence from renewable energy subsidies (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:78:y:2019:i:c:p:350-364

DOI: 10.1016/j.eneco.2018.11.034

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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