Working Paper: NBER ID: w24310
Authors: Ashley Langer; Derek Lemoine
Abstract: We analyze the efficient subsidy for durable good technologies. We theoretically demonstrate that a policymaker faces a tension between intertemporally price discriminating by designing a subsidy that increases over time and taking advantage of future technological progress by designing a subsidy that decreases over time. Using dynamic estimates of household preferences for residential solar in California, we show that the efficient subsidy increases over time. The regulator's spending quintuples when households anticipate future technological progress and future subsidies.
Keywords: subsidies; technology adoption; solar energy; dynamic pricing
JEL Codes: H21; H23; H71; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficient subsidy (H23) | increase over time (O42) |
| anticipated future subsidies (H23) | delay adoption (J13) |
| delay adoption (J13) | expand inframarginal consumers (F61) |
| expand inframarginal consumers (F61) | reduce regulator's ability to price discriminate (D40) |
| technological progress (O33) | declining subsidy (H23) |
| rational expectations of future subsidies (D84) | increase total spending on subsidies (H53) |
| subsidy design (H20) | adoption rates (J13) |
| consumer expectations (D84) | subsidy effectiveness (H23) |