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- Title
The Role of the Government in Subsidizing Solar Energy.
- Authors
Yokell, Michael D.
- Abstract
This article discusses the economic rationale for a federal solar energy subsidy program in the U.S. The federal government should subsidize solar energy for both first best and second best reasons. First best policies are those which could increase social welfare even if the economy was functioning according to the normative standard of perfect competition. Second best policies are those which are designed to increase social welfare in an imperfectly competitive economy. First best reasons include: 1) innovation often involves a public good externality because the social returns from innovation cannot be entirely captured by an innovator; 2) investors in the innovation process are usually risk averse when investing in new technologies. By pooling the risk over a far larger number of individuals, society should willingly support a higher level of investment in risky innovations than private firms or individuals would; 3) private purchasers of new technology are averse to risk of product failure, improper installation, etc. The private willingness to purchase an innovative product would be raised to optimal levels if risk could be pooled; 4) capital market imperfections can prevent a purchaser from taking advantage of potential life cycle savings offered by solar technologies with high initial costs.
- Subjects
UNITED States; FEDERAL aid to energy development; SOLAR energy policy; ENERGY policy; SOLAR energy
- Publication
American Economic Review, 1979, Vol 69, Issue 2, p357
- ISSN
0002-8282
- Publication type
Article