Date Added: Jul 2010
In a perfectly competitive market with a possibility of technological innovation the authors contrast guaranteed feed-in tariffs for electricity from renewable and tradable green certificates from a dynamic efficiency and social welfare point of view. Specifically, they model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. They find that for the case of technological innovation with convex costs subsidy policies are preferable over quota-based policies. Further, in terms of dynamic efficiency, no pre-commitment policies are shown to be at least as good as the pre-commitment ones.