This paper estimates demand for residential solar photovoltaic (PV) systems using a new approach to address three empirical challenges that often arise with count data: excess zeros, unobserved heterogeneity, and endogeneity of price. Our results imply a price elasticity of demand for solar PV systems of −0.65. Counterfactual policy simulations indicate that reducing state financial incentives in half would have led to 9% fewer new installations in Connecticut in 2014. Calculations suggest a subsidy program cost of $364/tCO2 assuming solar displaces natural gas. Our Poisson hurdle approach holds promise for modeling the demand for many new technologies.
Count data hurdle model fixed effects instrumental variables Poisson energy policy C33 C36 Q42 Q48