HKS Authors

See citation below for complete author information.

Teresa and John Heinz Professor of the Practice of Environmental Policy


This study examines the choice between subsidizing investment and subsidizing output to promote socially desirable production. We exploit a natural experiment to estimate the impact of subsidy margin on the productivity of wind farms. Using instrumental variable and matching estimators, we find that investment subsidy claimants produce 10%–12% less power than they would have under the output subsidy. Accounting for extensive margin effects, we show that output subsidies are more cost-effective than investment subsidies over a large range of output targets.


Aldy, Joseph, Todd D. Gerarden, and Richard L. Sweeney. "Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy." Journal of the Association of Environmental and Resource Economists 10.4 (July 2023): 981-1018.