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Renewable Energy Policy Design Informed Through Economic Psychology
Type
dissertation project
Start Date
01 November 2012
End Date
31 October 2013
Status
ongoing
Keywords
Renewable Energy Policy
Economic Psychology
Investment Decision-Making
Implicit Association Test
Longitudinal Survey
Description
Most conventional energy generation technologies are resource intense and produce negative environmental externalities, which are not included in the price of these energy sources. There are basically two ways how to deal with this situation - energy policies may internalize externalities by increasing the price of energy, or they may create incentives to invest in energy generation technologies that imply less negative externalities. In most countries, the latter was chosen. Policies such as the feed in-tariff or investment subsidies have been put in place to incentivize investments in renewable energies. While some types of investors actively take advantage of this investment opportunity, others remain hesitant. What explains these different reactions to the renewable energy investment opportunity? Preliminary evidence points to the relevance of factors beyond a pure reason-based risk-return analysis - affect-based factors such as path dependence and worldviews appear to play a role in energy investment decision-making.
Using empirical research methods that were initially developed by psychologists, this research proposal suggests investigating these factors among different types of investors. In particular, one working paper is based on a longitudinal online survey among private household investors, analysing how "Fukushima" impacted renewable energy investment behaviour over time. A second paper will be based on an Implicit Association Test with strategic and institutional investors, and investigate these investors' risk perceptions related to renewable energies.
Analysing different investors' attitudes on renewable energy and their obstacles and motives to invest, the proposed research provides insight on how to design energy policies more effectively. In particular, Reisch and Oehler (2009) list a few points of interest when behavioural economics ought to inform policymaking. These are among others
- To what extent one can speak of "established findings" considering that the discipline is young;
- On which markets, for which products and which types of actors deviations from "rational" behaviour are particularly relevant;
- Which assumptions on behaviour should be the ground to design interventions.
The call for evidence on behavioural patterns of individual decision-making in order to inform policy making is the motivation for the research proposal. Renewable energies was chosen as a field of application because this industry is subject to high policy influence and therefore an interesting field to study the impact of policies on investment decision-making. Furthermore, several countries are currently revising their energy policies, which implies that research in this field is not only theoretically interesting, but may also provide a contribution to a relevant socio-political question of today.
This research is financed by a fellowship for prospective researchers of the Swiss National Science Foundation.
Using empirical research methods that were initially developed by psychologists, this research proposal suggests investigating these factors among different types of investors. In particular, one working paper is based on a longitudinal online survey among private household investors, analysing how "Fukushima" impacted renewable energy investment behaviour over time. A second paper will be based on an Implicit Association Test with strategic and institutional investors, and investigate these investors' risk perceptions related to renewable energies.
Analysing different investors' attitudes on renewable energy and their obstacles and motives to invest, the proposed research provides insight on how to design energy policies more effectively. In particular, Reisch and Oehler (2009) list a few points of interest when behavioural economics ought to inform policymaking. These are among others
- To what extent one can speak of "established findings" considering that the discipline is young;
- On which markets, for which products and which types of actors deviations from "rational" behaviour are particularly relevant;
- Which assumptions on behaviour should be the ground to design interventions.
The call for evidence on behavioural patterns of individual decision-making in order to inform policy making is the motivation for the research proposal. Renewable energies was chosen as a field of application because this industry is subject to high policy influence and therefore an interesting field to study the impact of policies on investment decision-making. Furthermore, several countries are currently revising their energy policies, which implies that research in this field is not only theoretically interesting, but may also provide a contribution to a relevant socio-political question of today.
This research is financed by a fellowship for prospective researchers of the Swiss National Science Foundation.
Leader contributor(s)
Funder(s)
Topic(s)
Renewable Energy Policy
Economic Psychology
Investment Decision-Making
Implicit Association Test
Longitudinal Survey
Method(s)
Longitudinal Online Survey
Implicit Association Test
Range
Institute/School
Range (De)
Institut/School
Division(s)
Eprints ID
219434
Reference Number
146901
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PublicationWhen Energy Policy Meets Free-Market Capitalists: The Moderating Influence of Worldviews on Risk Perception and Investment Decisions( 2013-08-12)Several countries have set targets and implemented policies to increase the share of renewable energy sources. Whether or not those targets will eventually be met critically hinges upon the effectiveness of policies to mobilize private investment. An implicit assumption shared by many policy makers is that there is a positive correlation between renewable energy policies and private investment. However, just as energy policy can create opportunities, it can also create risk, and perceptions may differ between policy makers and investors. This paper adds to a growing stream of research in Energy Policy that empirically investigates investor perceptions of policies, and their influence on investment decision-making. Based on a survey of 29 venture capital investors conducting 1,064 experimental investment decisions, we show that high levels of regulatory exposure have a significantly negative effect on their likelihood to invest in renewable energy. However, venture capitalists are less risk-averse when it comes to low levels of regulatory exposure. Our findings suggest that investors' worldviews are an important moderating factor: respondents who expose strong "free-market" worldviews are more risk-averse under high levels of regulatory exposure than other investors.Type: presentation