Reconciling WTP to actual adoption of green energy tariffs: A diffusion model of an induced environmental market

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dc.contributor.author DIAZ-RAINEY, Ivan
dc.contributor.author TZAVARA, Dionisia
dc.date.accessioned 2009-07-06T10:00:10Z
dc.date.available 2009-07-06T10:00:10Z
dc.date.issued 2009
dc.identifier.issn 1028-3625
dc.identifier.uri http://hdl.handle.net/1814/11914
dc.description.abstract This paper develops a formal model that links the willingness to pay (WTP) literature with the established innovation diffusion literature. This concern arises from an attempt to reconcile the large disparities that have been observed between actual adoption of green energy tariffs and WTP for such tariffs. These disparities have often been attributed to upward response bias and the free rider problem. However, empirical research indicates that other factors have hindered the development of green energy markets, including supply side problems and poor regulation. Using an epidemic diffusion framework our model shows how increasing consumer environmental concern driven by word of mouth and mass media communication channels results in a growing number of people who state they are WTP for green energy. The presence of upward response bias and the free rider problem result in ‘feasible adoption’ being below stated WTP. Feasible adoption is, in turn, differentiated from actual adoption by the extent of market imperfections. It is concluded that; (1) the potential of such markets may take time to reap and that the low penetration rates of today may reflect a conventional diffusion trajectory and (2); low and stable energy prices appear to be a precondition if consumers are to contribute substantively to the funding of renewables investments through green tariffs. en
dc.language.iso en en
dc.relation.ispartofseries EUI RSCAS en
dc.relation.ispartofseries 2009/33 en
dc.subject Willingness-to-pay en
dc.subject innovation diffusion en
dc.subject green energy en
dc.subject environmental valuation en
dc.title Reconciling WTP to actual adoption of green energy tariffs: A diffusion model of an induced environmental market en
dc.type Working Paper en
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