Motivation Crowding in Peer Effects: The Effect of Solar Subsidies on Green Power Purchases

Abstract I test whether economic incentives impact peer effects in public-good settings. I study how a visible and subsidized contribution to a public good (installing solar panels) affects peer contributions to the same good that are neither subsidized nor visible (electing green power). Exploiting spatial variation in the feasibility of installing solar panels, I find that on average panels increase voluntary purchases of green power by neighbors. However, when subsidies to solar are high, solar panels reduce peer contributions. The results support the hypothesis that signals drive peer responses to visible public-good contributions and that economic incentives alter those signals.