When Do Households Invest in Solar Photovoltaics? An Application of Prospect Theory

Martin Klein and Marc Deissenroth

Papers from arXiv.org

Abstract: While investments in renewable energy sources (RES) are incentivized around the world, the policy tools that do so are still poorly understood, leading to costly misadjustments in many cases. As a case study, the deployment dynamics of residential solar photovoltaics (PV) invoked by the German feed-in tariff legislation are investigated. Here we report a model showing that the question of when people invest in residential PV systems is found to be not only determined by profitability, but also by profitability's change compared to the status quo. This finding is interpreted in the light of loss aversion, a concept developed in Kahneman and Tversky's Prospect Theory. The model is able to reproduce most of the dynamics of the uptake with only a few financial and behavioral assumptions

Date: 2018-08
New Economics Papers: this item is included in nep-ene and nep-upt
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Published in Klein, M. & Deissenroth, M., 2017. When do households invest in solar photovoltaics? An application of prospect theory. Energy Policy, 109, pp. 270-278, DOI: 10.1016/j.enpol.2017.06.067

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Journal Article: When do households invest in solar photovoltaics? An application of prospect theory (2017)
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