4.7 Article

Demanding Innovation: The Impact of Consumer Subsidies on Solar Panel Production Costs

期刊

MANAGEMENT SCIENCE
卷 -, 期 -, 页码 -

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INFORMS
DOI: 10.1287/mnsc.2022.4662

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research and development; innovation; economics; industrial organization; energy policies; firm strategy

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Private sector innovation is crucial in addressing climate change. This paper analyzes the innovation in solar energy technology and its impact on clean energy. The study finds that government policies should consider the effects of innovation by firms to accurately evaluate their effectiveness. Furthermore, decentralized government intervention in the global market leads to spillovers that highlight the importance of international coordination to combat climate change.
Private sector innovation is critical to mitigating and adapting to climate change. This paper studies innovation in solar energy technology, a key source of clean energy that has experienced rapid price declines over the past decade. To understand the causes and effects of innovation, I estimate a dynamic structural model of competition among solar panel manufacturers. The model captures important features of the industry, including the role of government subsidies for solar adoption, and I employ a unique measure of technological progress that is observable and verifiable. The results produce two main insights. First, ignoring innovation by firms can generate biased estimates of the effects of government policy. Second, decentralized government intervention in a global market generates spillovers; a subsidy in one country causes international firms to innovate more, leading to lower prices and increased adoption elsewhere. This spillover underscores the need for international coordination by governments and the private sector to address climate change.

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