Behavioral preferences and contract choice in the residential solar PV market

30 Pages Posted: 29 Apr 2022

See all articles by Christine Crago

Christine Crago

University of Massachusetts Amherst

Rong Rong

University of Massachusetts Amherst

Date Written: April 20, 2022

Abstract

Greater adoption of renewable energy technologies by households is a key component of decarbonization and energy transition goals. While existing literature has examined the link between energy technology adoption and socio-demographic characteristics, "green" preferences, and peer effects, the role of behavioral preferences has not been adequately studied. In this paper, we examine the effect of two types of behavioral preferences, namely the degree of risk tolerance (risk preference) and the attitude towards a delayed reward (time preference) on the contract decision to lease or own a solar photovoltaic (PV) system. We develop a theoretical framework to show that the effect of risk and time preferences on the relative utilities from the two contracts is monotonic: Lower risk aversion and lower discount rate (more patience) imply a higher chance of solar PV ownership. To test these predictions empirically, we first estimate preference parameters from laboratory data collected from solar PV adopters. We then combine the parameter estimates with data on actual solar PV contract choices to examine the relationship between solar PV adopters' time and risk preferences and their own-vs-lease choice. Our regression results con rm that less risk-averse individuals have a higher tendency to choose the ownership option, and that more patient individuals are (weakly) more likely to own their solar PV systems. These findings
contribute to a greater understanding of the role of behavioral factors in solar energy
adoption decisions.

Keywords: energy technology adoption, lease vs own, risk preferences, time preferences

JEL Classification: Q42, C91

Suggested Citation

Crago, Christine and Rong, Rong, Behavioral preferences and contract choice in the residential solar PV market (April 20, 2022). Available at SSRN: https://ssrn.com/abstract=4088542 or http://dx.doi.org/10.2139/ssrn.4088542

Christine Crago (Contact Author)

University of Massachusetts Amherst ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003
United States

Rong Rong

University of Massachusetts Amherst ( email )

United States
7035319637 (Phone)

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