Minimum prices and social interactions: Evidence from the German renewable energy program

Justus Inhoffen, Christoph Siemroth, Philipp Zahn*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Minimum prices above the competitive level can lead to allocative inefficiencies. We investigate whether this effect is more pronounced when decision makers are influenced by their social environment. Using data of minimum prices for renewable energy production in Germany, we test if individual decisions to install photovoltaic systems are affected by the investment decisions of others in the area. 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 radiation. Thus, social interaction can add secondary inefficiencies to the known allocative problems of minimum prices. The social interaction effect is stronger in areas with more solar radiation and less unemployment. A larger number of existing systems and more concentrated installations increase the social effect further.

Original languageEnglish
Pages (from-to)350-364
Number of pages15
JournalEnergy Economics
Volume78
Early online date6 Dec 2018
DOIs
Publication statusPublished - Feb 2019

Keywords

  • Feed-in tariffs
  • Neighborhood effects
  • Peer effects
  • PV systems
  • Renewable energy
  • Solar energy
  • Subsidies

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