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  3. American Economic Review
  4. June 2019
  5. Subsidies and Time Discounting in New Technology Adoption: Evidence from Solar Photovoltaic Systems

Subsidies and Time Discounting in New Technology Adoption: Evidence from Solar Photovoltaic Systems

  • Olivier De Groote
  • Frank Verboven
American Economic Review
vol. 109, no. 6, June 2019
(pp. 2137-72)
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Abstract

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 a tractable dynamic model of new technology adoption, also accounting for local market heterogeneity. We identify the discount factor from demand responses to variation that shifts expected future but not current utilities. Despite the massive adoption, we find that households significantly discounted 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.

Citation

De Groote, Olivier, and Frank Verboven. 2019. "Subsidies and Time Discounting in New Technology Adoption: Evidence from Solar Photovoltaic Systems." American Economic Review, 109 (6): 2137-72. DOI: 10.1257/aer.20161343

Additional Materials

JEL Classification

  • C51 Model Construction and Estimation
  • D15 Intertemporal Household Choice; Life Cycle Models and Saving
  • Q48 Energy: Government Policy
  • Q58 Environmental Economics: Government Policy