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Investment Versus Output Subsidies: Implications of Alternative Incentives for Wind Energy

HKS Working Paper No. RWP18-012

41 Pages Posted: 6 Mar 2018

See all articles by Joseph E. Aldy

Joseph E. Aldy

Harvard Kennedy School; National Bureau of Economic Research; Resources for the Future; Harvard University - Harvard Kennedy School (HKS)

Todd Gerarden

Cornell Dyson School of Applied Economics and Management

Richard Sweeney

Boston College - Department of Economics

Date Written: February 27, 2018

Abstract

This paper examines the choice between subsidizing investment or output to promote socially desirable production. We exploit a natural experiment in which wind farm developers could choose an investment or output subsidy to estimate the impact of these instruments on productivity. Using regression discontinuity and matching estimators, we find that wind farms claiming the investment subsidy produced 10 to 11 percent less power than wind farms claiming the output subsidy, and that this effect reflects subsidy incentives rather than selection. The introduction of investment subsidies caused the Federal government to spend 12 percent more per unit of output from wind farms.

Keywords: tax credits, energy subsidies, instrument choice

JEL Classification: H23, Q42, Q48

Suggested Citation

Aldy, Joseph E. and Gerarden, Todd and Sweeney, Richard, Investment Versus Output Subsidies: Implications of Alternative Incentives for Wind Energy (February 27, 2018). HKS Working Paper No. RWP18-012. Available at SSRN: https://ssrn.com/abstract=3134792 or http://dx.doi.org/10.2139/ssrn.3134792

Joseph E. Aldy (Contact Author)

Harvard Kennedy School

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Todd Gerarden

Cornell Dyson School of Applied Economics and Management ( email )

Ithaca, NY 14853
United States

Richard Sweeney

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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