Public R&D Support for Innovation: Are Grants and Tax Credits Complements or Substitutes? (JMP)

Governments have a long history of subsidising private research and development (R&D), but there is still little evidence regarding which mechanisms actually produce innovation outcomes and how policies interact. This paper develops a quasi-experimental method that combines difference-in-differences and regression-discontinuity research designs to study how interacting R&D support schemes and their generosity impact innovation. Importantly, the approach allows for the effects of indirect funding (tax incentives) and direct funding (grants) to be disentangled. I build a database of firm performance and innovation measures by linking several micro-level datasets of UK firms. Preliminary results show that tax credits and grants are complementary for producing some types of innovations, but not all. Continued work explores why this is the case.

Disentangling Uncertainty and Salience: The Case of Solar Self-Consumption (with Eoghan McKenna)

Uncertainty and salience can have dramatically different policy implications, but the distinction between them is not always entirely clear. We use high-frequency data on solar energy generation and electricity consumption to disentangle rational habits from endowment salience effects. We test how providing real-time information regarding onsite solar generation affects demand for self-generated power. Preliminary results suggest that households behave rationally towards uncertainty but do not fully optimize with respect to endowments that are imperfectly salient. With increased salience, the endowment elasticity increases by 4 percent on average and up to 18 percent depending on time of year and day. Continued work is applying econometric and machine learning methods to derive salience-adjusted self-consumption counterfactuals and welfare effects. The methods can be applied in other settings with misoptimizing consumers.

Pass-Through as a Test for Market Power: An Application to Solar Subsidies (with Arthur van Benthem) (Submitted(An earlier version of this paper was circulated as “The Surprising Pass-through of Solar Subsidies“, NBER Working Paper No. 23260)

We formalize pass-through over-shifting as a simple yet under-utilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than-complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting, and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.

“Identifying collaboration and product market rivalry effects on innovation” (very preliminary)