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Does social interaction make bad policies even worse? Evidence from renewable energy subsidies

Justus Inhoffen, Christoph Siemroth and Philipp Zahn

No 16-09, Working Papers from University of Mannheim, Department of Economics

Abstract: Minimum prices above the market level can lead to ineffcient production and oversupply. We investigate whether this effect is even more pronounced when decision makers are influenced by their social environment. Using data of minimum prices for renewable energy production in Germany, we analyze if individual decisions to install solar panels are affected by the investment decisions of others. 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 potential. This social effect is stronger in areas with more solar potential and less unemployment. A higher number of existing panels and more concentrated installations increase the social effect further. We discuss policy implications of these social effects.

Keywords: EEG; Minimum Prices; Peer Effects; Public Policy; Renewable Energy; Social Interaction; Social Effect; Social Multiplier; Solar Power; Solar Panels; Subsidy (search for similar items in EconPapers)
JEL-codes: H23 L14 Q42 Q48 Q58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur, nep-reg and nep-soc
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Journal Article: Minimum prices and social interactions: Evidence from the German renewable energy program (2019) Downloads
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