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Minimum Prices and Social Interactions: Evidence from the German Renewable Energy Program

Inhoffen, Justus Hans and Siemroth, Christoph and Zahn, Philipp (2019) 'Minimum Prices and Social Interactions: Evidence from the German Renewable Energy Program.' Energy Economics, 78. 350 - 364. ISSN 0140-9883

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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.

Item Type: Article
Uncontrolled Keywords: Minimum Prices, Peer Effects, Renewable Energy, Social Interaction, Solar Panels, Subsidy
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 03 Dec 2018 16:38
Last Modified: 06 Jun 2020 01:00

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