Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238298 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
IRENE Working Paper No. 21-03
Publisher: 
University of Neuchâtel, Institute of Economic Research (IRENE), Neuchâtel
Abstract: 
This paper studies how subsidies for photovoltaic solar systems can lead to second-degree moral hazard - the impulse of installers to increase factors determining the total subsidies and/or transaction when consumers receive larger subsidy levels. Employing an instrumental variable strategy using plausibly exogenous variation in the size of subsidy levels to address concerns about self-selection of installers into specific subsidy levels, I quantify the impact of subsidy levels on the expected electricity output and transaction prices of PV systems in California. The results are consistent with hypothesized drivers of second-degree moral hazard as larger subsidy levels are associated with i) an increased measure of the expected electricity output leading to increased subsidies when third-parties own the PV system and ii) increased transaction prices when consumers themselves own the system. The results further suggest that subsidy programs should verify the work of an installer, for example during mandatory field inspections, as these reduce second-degree moral hazard.
Subjects: 
PV systems
Credence goods
Subsidies
Asymmetric information
Second-degree moral hazard
JEL: 
H23
H32
H76
D82
Q42
C26
Document Type: 
Working Paper

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