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

34 Pages Posted: 17 Jun 2016 Last revised: 3 Dec 2018

See all articles by Justus Inhoffen

Justus Inhoffen

VU Amsterdam; German Institute for Economic Research

Christoph Siemroth

University of Essex - Department of Economics

Philipp Zahn

University of St. Gallen

Date Written: November 13, 2018

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: Feed-in Tariffs, Neighborhood Effects, Peer Effects, PV Systems, Renewable Energy, Solar Energy, Subsidies

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

Suggested Citation

Inhoffen, Justus and Siemroth, Christoph and Zahn, Philipp, Minimum Prices and Social Interactions: Evidence from the German Renewable Energy Program (November 13, 2018). Energy Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2796130 or http://dx.doi.org/10.2139/ssrn.2796130

Justus Inhoffen

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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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