Working Paper: NBER ID: w24378
Authors: Joseph E. Aldy; Todd D. Gerarden; Richard L. Sweeney
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.
Keywords: Investment Subsidies; Output Subsidies; Wind Energy; Productivity
JEL Codes: H23; Q42; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subsidy type (H20) | wind farm productivity (Q47) |
| investment subsidy (1603 grant) (H25) | productivity relative to output subsidy (PTC) (E23) |
| investment subsidies (H23) | efficient production (D24) |
| matched difference-in-differences estimator (C22) | valid comparisons between matched groups (C52) |