1. An example of increasing returns to scale in photovoltaic adoption

    Climate Progress points to a Yale University study on adoption of photovoltaics (PVs) in residences, in which the time lag between installations falls as the number of installations increases.  The authors call this a “peer” effect, in which a greater concentration of PV panels makes it even more likely that neighbors will also install PVs.

    This is a specific example of what in the economics literature is called “increasing returns to scale”.  There are many different forms of this effect, including economies of scale, network externalities, learning by doing, and zero marginal costs for reproducing information (by using information technology).  For those interested in carbon mitigation opportunities, this effect is critical, but it is omitted by assumption from virtually all computable general equilibrium models, because including it would result in path dependence and multiple possible end-points for a given starting point.  The real world is full of such effects, and that’s one reason why conventional economic assessments of the costs of reducing carbon emissions almost invariably overestimate the costs of taking action.  I will have a lot more to say about increasing returns in upcoming posts.

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I research, consult, and lecture about climate solutions, critical thinking skills, and the environmental effects of information technology.

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