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

39 Pages Posted: 17 Jun 2016 Last revised: 25 Nov 2016

Justus Hans Inhoffen

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Christoph Siemroth

University of Essex - Department of Economics

Philipp Zahn

University of St. Gallen

Date Written: November 24, 2016

Abstract

Minimum prices above the competitive level can lead to inefficient overproduction. 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 solar panels 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 panels and more concentrated installations increase the social effect further.

Keywords: Minimum Prices, Peer Effects, Renewable Energy, Social Interaction, Solar Panels, Subsidy

JEL Classification: H23, L14, Q42, Q48, Q58

Suggested Citation

Inhoffen, Justus Hans and Siemroth, Christoph and Zahn, Philipp, Minimum Prices and Social Interactions: Evidence from the German Renewable Energy Program (November 24, 2016). Available at SSRN: https://ssrn.com/abstract=2796130

Justus Hans Inhoffen

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Christoph Siemroth (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

HOME PAGE: http://sites.google.com/site/csiemroth/

Philipp Zahn

University of St. Gallen ( email )

Dufourstrasse 50
St.Gallen, CH-9000
Switzerland

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