Solar Homes and “Green” Status Environmental goods are largely public goods consumed collectively Due to their public nature, demand for the goods are normally expressed politically People with stronger demands are more supportive of public environmental policy than those with weaker environmental demands

Demand curves Dw and Ds indicate variation in demand for environmental good Example of environmental policy consumer Ds more likely to support than Dw: Increase tax on gasoline Transfer funds from highways to public transportation projects Laws prohibiting fracking

People also make private environmental choices The study’s example: Home installation of solar panels Solar energy is “clean” Does not involve burning of fossil fuels Does not contribute to local air pollution Does not emit gases that contribute to global warming

Installing solar panels on homes may be motivated by private economic calculation If cost of purchasing, installing and maintaining solar panels is less than money saved in electric bills, would be economically efficient Solar found generally not to be cost effective, even with federal subsidies to homeowners

Study uses data on San Diego homes sold between 1997 and 2010 Three hundred and twenty-nine of the transacted homes had solar panel system; less than 1% of sample

The environmental impact of a change in an individual home’s energy demand is minimal What is the incentive to install solar panels if it is not economically cost effective? Homeowner may derive well being from showing others that they are being “environmental” – solar panels are readily visible Compare to: i. driving a Prius ii. taking public transportation iii. Voting for green party

The incentive may be even greater in communities known for environmentalism (i.e. Berkeley) Paper estimates average willingness to pay for solar panel systems using data from house sales How did the existence of the systems affect the price of houses? Study later estimates the effects for different types of neighborhoods

The statistics suggest solar panels add approximately 3 The statistics suggest solar panels add approximately 3.6% to the sales value of a home Equivalent to roughly $22,554 in value for the average house in sample The estimated cost of the average solar panel system after federal subsidy is $20,892

House buyers who pay the premium for a house with solar panels will not on average recover the extra cost through lower utility bills over the lifetime of the panels Implies buyers of houses with panels are motivated by more than just the “use value” of the panels May be paying for the message the panels communicate within a community

Is there evidence that solar panels’ value comes from its appeal to environmentalists who want to show their environmentalism? Study tests whether the market value of solar is sensitive to the type of neighborhood the house is in Expect solar panels to have a larger impact on value of houses sold in “environmental neighborhoods”

Estimated Neighborhood Effect Description of Neighborhood Effect on Willingness to Pay for Solar Panels in a House Greater Number of Prius Vehicles in Neighborhood Positive Greater Number of Trucks Negative Larger Share of Residents who Vote for the Green Party Greater Median Income Larger Number of College Graduates