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

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  • Inhoffen, Justus
  • Siemroth, Christoph
  • Zahn, Philipp

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.

Suggested Citation

  • Inhoffen, Justus & Siemroth, Christoph & Zahn, Philipp, 2016. "Does social interaction make bad policies even worse? Evidence from renewable energy subsidies," Working Papers 16-09, University of Mannheim, Department of Economics.
    • Handle: RePEc:mnh:wpaper:40977
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    Cited by:

    1. Konc, Théo & Savin, Ivan & van den Bergh, Jeroen C.J.M., 2021. "The social multiplier of environmental policy: Application to carbon taxation," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    2. Li, Hao & Wang, Zhao-Hua & Zhang, Bin, 2023. "How social interaction induce energy-saving behaviors in buildings: Interpersonal & passive interactions v.s. public & active interactions," Energy Economics, Elsevier, vol. 118(C).
    3. Boqiang Lin & Huanyu Jia, 2023. "The role of peers in promoting energy conservation among Chinese university students," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-10, December.
    4. Saleem, Shaham & Zhang, Yixiang, 2024. "Impact of knowledge and trust on households' solar energy consumption behavior: Do social influence and gender matter?," Energy, Elsevier, vol. 293(C).
    5. Sokołowski, Jakub, 2023. "Peer effects on photovoltaics (PV) adoption and air quality spillovers in Poland," Energy Economics, Elsevier, vol. 125(C).
    6. Dincer, Hasan & Yuksel, Serhat, 2019. "Balanced scorecard-based analysis of investment decisions for the renewable energy alternatives: A comparative analysis based on the hybrid fuzzy decision-making approach," Energy, Elsevier, vol. 175(C), pages 1259-1270.
    7. Jabeen, Gul & Ahmad, Munir & Zhang, Qingyu, 2021. "Perceived critical factors affecting consumers’ intention to purchase renewable generation technologies: Rural-urban heterogeneity," Energy, Elsevier, vol. 218(C).
    8. Croonenbroeck, Carsten & Hennecke, David, 2020. "Does the German renewable energy act provide a fair incentive system for onshore wind power? — A simulation analysis," Energy Policy, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    EEG ; Minimum Prices ; Peer Effects ; Public Policy ; Renewable Energy ; Social Interaction ; Social Effect ; Social Multiplier ; Solar Power ; Solar Panels ; Subsidy;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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