Abstract

Over the last 10 years, the solar photovoltaic (PV) market has experienced
tremendous growth due in part to government incentive programs. However the ef-
fect and welfare analysis of these policy instruments remain ambiguous. In the first
chapter of my dissertation I estimate a dynamic model of households investment
decisions on rooftop PV systems to understand the impact of these programs on
residential solar installations and evaluate the impact of alternative incentive poli-
cies. The model separately evaluates the impact of system price, up-front subsidies,
tax credits and production revenues using a 5-year dataset collected by the Califor-
nia 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 are more efficient. With a $100 social cost of
carbon, the total subsidies in California would be welfare neutral. If California
were only as sunny as Frankfurt, Germany, this value has to be $200 to be welfare
neutral. I find that without subsidies, 85% of the existing installations would not
have occurred. If the pending antidumping tariff on imported Chinese solar cells
raises the domestic module price by 25%, we could expect to see a quarter reduc-
tions in the solar power system investments. The second chapter of my dissertation
is on the political economics of corruption. This is a highly relevant question in
the Environmental Economics context simply due to the nature of governmental
regulations. We proposed a formal model of bribery as an additional entry cost in
a simple Cournot game under different circumstances. Bribery in markets without
pre-existing firms leads to inefficiency due to under-entry, while zero bribery is also
shown to be inefficient. A social planner may however use bribery to the benefit of
society by either manipulating the number of pre-existing firms in the market, or
by setting up independent and identical licensing authorities. Having exactly two
licensing authorities is shown to lead to a socially optimal number of competing
firms in the market. In other words, this is a market solution to the ubiquitous
problem of corruption in one particular area of civil service: It minimizes the dead-
weight loss due to corruption by creating the right level of competition amongst
entry-certifying officials. Perhaps surprisingly, the final outcome even dominates
the pure market solution of free entry, since the former is second-best socially op-
timal while the latter is not (Mankiw and Whinston, 1986). In effect, the simple
mechanism at hand deals in one stroke with the simultaneous presence of two well-
known sources of social inefficiency, free entry under a business-stealing externality
and the presence of corruption, and delivers a second-best socially optimal solution.