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

50 Pages Posted: 8 Apr 2019

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: March 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 an output subsidy to estimate the impact of these policy instruments on productivity. Using instrumental variables and matching estimators, we find that wind farms claiming the investment subsidy produced 10 to 12 percent less power than wind farms claiming the output subsidy, and that this effect reflects subsidy incentives rather than selection. Introducing investment subsidies caused the Federal government to spend 14 percent more per unit of output from wind farms.

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Suggested Citation

Aldy, Joseph E. and Gerarden, Todd and Sweeney, Richard, Investment Versus Output Subsidies: Implications of Alternative Incentives for Wind Energy (March 2018). NBER Working Paper No. w24378. Available at SSRN: https://ssrn.com/abstract=3367274

Joseph E. Aldy (Contact Author)

Harvard Kennedy School

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National Bureau of Economic Research

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Resources for the Future

79 JFK Street
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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
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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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