Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2014/35: Sun and Lemons: Getting over Information Asymmetries in the California Solar Market

Johannes Mauritzen ()
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Johannes Mauritzen: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: Using detailed data of approximately 125,000 solar photovoltaic systems installed in California between 2007 and 2014 I argue that the adoption of solar panels from Chinese manufacturers and the introduction of a leasing model for solar systems are closely intertwined. First, cheaper Chinese panels allowed a leasing model to be profitable for contractors. But an asymmetric information problem exists in the market for solar panels. Solar panels are long-lived productive assets, where quality is important but costly for individual consumers to verify. Consumers can instead be expected to rely on brands and observed reliability. This led to a barrier to entry for cheaper panels from new, primarily Chinese manufacturers. The adoption of a leasing model by several large local installers solved the asymmetric information problem and led to the adoption of Chinese panels and in turn lower overall system prices.

Keywords: Solar panels; asymmetric information problem

JEL-codes: Q00; Q40

38 pages, October 13, 2014

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