Weather and the Decision to Go Solar: Evidence on Costly Cancellations

Yanjun Liao

Journal of the Association of Environmental and Resource Economists, 2020, vol. 7, issue 1, 1 - 33

Abstract: This paper studies the effect of short-run weather fluctuations on solar panel adoption in California. This decision appears to respond strongly to weather patterns associated with solar panel productivity: I find that customers whose sign-up for solar panels is followed by unfavorable weather are more likely to cancel their contracts. In contrast, nonresidential customers are not subject to the same effect. Together, these results suggest that short-run weather conditions affect customers’ valuation of solar panels. The most plausible mechanisms are psychological biases such as projection bias or a salience effect, leading the decision maker to rely too heavily on transient conditions when predicting long-run utility. This paper is among the earliest to document evidence of behavioral anomalies in the solar market.

Date: 2020
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