Governments often offer subsidies to consumers for clean-technology products, from home solar panels to electric vehicles. But what are the right levels of subsidy, and how should they be calculated? As a new paper co-authored by MIT researchers shows, governments can easily make subsidies too low when they ignore a basic problem: Consumer demand for these products is usually highly uncertain.
Indeed, the paper’s analysis suggests this has already happened in the case of the Chevy Volt, an electric car introduced in 2010 that suffered slow initial sales before gaining more traction in the marketplace.
“The government will miss their target by a lot when ignoring demand uncertainty,” says Georgia Perakis, the William F. Pounds Professor of Management at the MIT Sloan School of Management and a co-author of the paper.
While discussion of “demand uncertainty” might sound a bit abstract, it matters. Governments usually provide subsidies based on overall adoption targets, such as the number of cars or solar panels they would like to see adopted over a period of time. But green technologies are often new products, and no one really knows how many consumers are waiting to buy them.
Some models of subsidies assume a steady ratio between the dollar amount of the subsidy and the total number of cars or solar panels that will be sold. But as the new paper indicates, that’s not quite the right approach. Given uncertain markets, subsidy levels don’t correlate steadily with sales. Instead, it takes relatively high subsidy levels to kick-start a certain amount of business; then a more gradual increase can help achieve higher sales.
For clean technologies, the research project shows, these increased subsidies should still pay for themselves even at higher levels, when issues such as reductions in pollution, which lead to lower health-care costs, are factored in.
The paper, “The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption,” has been published online by Management Science. The co-authors are Perakis; Maxime C. Cohen PhD ’15, an assistant professor at New York University; and Ruben Lobel PhD ’12, an assistant professor at the University of Pennsylvania.
Page 1 of 2
Suggested Items
Shane Whiteside of Summit Reflects on Today's PCB Landscape
05/08/2024 | I-Connect007 Editorial TeamSummit Interconnect began as a printed circuit board manufacturing company just eight years ago and has seen impressive growth organically and through acquisition. Summit President and CEO Shane Whiteside takes a few moments to share his thoughts on the growing PCB industry in the United States.
BAE Systems and Eaton Expand Collaboration to Deliver Electric Drive Solutions for Heavy-Duty Trucks
05/08/2024 | PRNewswireBAE Systems, a leader in electric propulsion, and Eaton, a global power management company, are expanding their collaboration to include electric vehicle (EV) solutions for heavy-duty trucks.
Coherix Partners with EMU on 'Factory of the Future' Technology Program
05/08/2024 | PRNewswireMichigan-based Coherix is working with Eastern Michigan University (EMU) in Ypsilanti to develop "factory-of-the-future" manufacturing and assembly technology.
2024 Apple iPad Pro Estimated to Ship Between 4.5 to 5 Million Units
05/08/2024 | TrendForceApple’s recent product launch in May introduced a lineup of new tablets featuring advanced AMOLED screens. Notably, the Pro version boasts a dual-layer tandem structure designed to address the longstanding challenges of screen burn-in and lifespan that are common with AMOLED displays.
Simbe Partners with Plexus to Scale Manufacturing and Meet Global Retail Demand
05/08/2024 | Globe NewswireSimbe, the leading provider of Store Intelligence™ solutions that increase retailer performance through unprecedented visibility and insights, today announced a partnership with Plexus Corp. to bring its best-in-class retail robotics-as-a-service to market quickly and at global scale.