Subsidies, Tariffs and Investments in the Solar Power Market

This paper estimates a dynamic model to understand the impact of these programs on residential solar installations and evaluate the impact of alternative incentive policies. The model evaluates the effect of system costs, capacity-based subsidies, tax credits and production revenues using a 5-1/2 year data set collected by the California Solar Initiative program, which subsidized solar installations in California. The results indicate that capacity-based subsidies are equally effective as production-based subsidies, but that the latter is more efficient. With a $120 social cost of carbon, the total subsidies in California would be welfare neutral. If California were only as sunny as Frankfurt, Germany and to maintain the current amount of solar electricity production, this value would have to be $730 to be welfare neutral. We find that the subsidies contribute around 40% to 60% of the installations. The declining schedule of the subsidy design does encourage more adoptions earlier on; however, the flat rate subsidy would have encouraged more adoptions overall when the price of the solar power systems is lower.



Corruption and Socially Optimal Entry

      (with Rabah Amir)

This paper investigates the effet of unhindered corruption in the entry-certifying process of an industru on market structure and social welfare. To gain entry, a firm must pay a bribe-maximizing official an exogenous percentage of anticipated profit, in addition to the usual st up cost. This wold lead to a monopolu, but only in markets without pre-existing firms. A benevolent social planner may use bribery to the benefit of society by either manipulating the number of pre-existing firms in the market, or by setting up independent (corrupt) licensing authorities. A socially optimal number of firms in the market may be reached by choosing the right number of pre-existing firms or by having exactly two licensing authorities. These mechanisms may be seen as restoring second-best efficiency in settings characterized by two major sources of distortion: Imperfect competition and corruption.



On the Prisoner's Dilemma in R&D with Input Spillovers

  (with Malgorzata Knauff and Anna Stepanova)

This paper extends the result that duopoly firms engaged in a standard two-stage game of R&D and Cournot competition are caught in a prisoner's dilemma for their R&D decisions whenever spillover effects and R&D costs are low. In terms of social welfare, this effect always works to the advantage of consumers and society. This result provides an interesting perspective on the incentives firms have towards R&D cooperation, which is shown here to be U-shaped in the size of spillovers. The prisoner's dilemma also provides an insightful explanation for the well-known wedge between private and social incentives for R&D under low spillovers. The latter take over when suciently high, as is widely recognized.


Research Statement


The above flash image shows the solar power system installations in California from 2007-2011 (©Burr 2012)