Subsidies and myopia in technology adoption: evidence from solar photovoltaic systems

Olivier De Groote and Frank Verboven

No 547933, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

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.

Date: 2016-08
Note: paper number DPS 15.16
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Published in Department of Economics. Discussion paper series,, pages 1-50

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Working Paper: Subsidies and Myopia in Technology Adoption: Evidence from Solar Photovoltaic Systems (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:547933

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