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The German offshore wind tender, launched in April 2017, resulted in three out of the four winning projects being delivered with zero subsidies, relying only on the wholesale price. This result has been regarded as a turning point for the industry. This paper analyses the 2017/18 German offshore wind tenders and the bidding strategies of the winning developers. We then propose a re-design of the tenders with the aim of achieving optimality/zero-subsidies and efficiency - two key properties in mechanism design. The paper contributes to the discussion on how to design offshore wind tenders with both a policy and theoretical perspective. This is of particular relevance given the rapid expansion of this type of investment in Europe and the use of auctions to select developers.

The agriculture industry plays a critical role in the U.S. economy, and various industry sectors depend on the output of farms. To protect and raise farmers’ income, the U.S. government offers two subsidy programs to farmers: the Price Loss Coverage (PLC) program, which pays farmers a subsidy when the market price falls below a reference price, and the Agriculture Risk Coverage (ARC) program, which is triggered when farmers’ revenue is below a threshold. Given the unique features of PLC and ARC, we develop models to analyze their impacts on consumers, farmers, and the government. Our analysis generates several insights. First, while PLC always motivates farmers to plant more acres compared to the no-subsidy case, farmers may plant fewer acres under ARC, leading to a lower crop supply. Second, despite the prevailing intuition that ARC generally dominates PLC, we show that both farmers and consumers may be better off under PLC for a large range of parameter values, even when the reference price represents the historical average market price. Third, the subsidy that increases consumer surplus results in higher government expenditure. Finally, we calibrate our model with U.S. Department of Agriculture (USDA) data and provide insights about the effects of crop and market characteristics on the relative performance of PLC and ARC. We provide guidelines to farmers for enrolling crops in the subsidy programs, and show that our guidelines are supported by farmers’ enrollment statistics. We also show that if the economic and political frictions caused by running the subsidy programs is significant, the subsidy that benefits both consumers and farmers may actually result in lower social welfare. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2927 . This paper was accepted by Serguei Netessine, operations management.

PurposeIn this paper, the authors aim to consider the manufacturer's battery research and development (R&D) decision under subsidy. The supply chain includes two manufacturers, which produce substitutable electric vehicles, and a battery supplier. One of the manufacturers can choose to develop batteries or buy batteries. The authors assume consumers do not have enough trust in the manufacturer-made battery.Design/methodology/approachStackelberg game is made use of to study the battery R&D strategy of the manufacturer under the incentive of government subsidies. This paper makes a comparative analysis on six situations, then the authors get some conclusions and give some managerial insights.FindingsThe results show that subsidy strategies do not necessarily reduce actual payments when the manufacturer does not research and develop batteries. The retail prices and actual payments are closely related to the substitutability and total cost advantage of product. The authors also find consumer trust positively affects the demand of the electric vehicles using the manufacturer-made batteries and then affects the manufacturer's battery R&D decision. When consumers have low trust in manufacturer-made battery, subsidy can bring greater sales and make R&D more profitable than procurement, so that the manufacturer chooses R&D. This study's findings also suggest consumer subsidy is always better for the government.Originality/valueDistinguished from previous studies, the authors discuss the decision-making of component research, and introduce various government subsidy strategies and consumer trust to study their roles in the manufacturer's battery R&D choice.

This essay describes and evaluates state and local business tax incentives in the United States. In 2014, states spent between 5 USD and 216 USD per capita on incentives for firms in the form of firm-specific subsidies and general tax credits, which mostly target investment, job creation, and research and development. States with higher per capita incentives tend to have higher state corporate tax rates. Recipients of firm-specific incentives are usually large establishments in manufacturing, technology, and high-skilled service industries, and the average discretionary subsidy is 178M USD for 1,500 promised jobs. Firms tend to accept subsidy deals from places that are richer, larger, and more urban than the average county, and poor places provide larger incentives and spend more per job. Comparing winning and runner-up locations for each deal, we find that average employment within the three-digit industry of the deal increases by roughly 1,500 jobs. While we find some evidence of direct employment gains from attracting a firm, we do not find strong evidence that firm-specific tax incentives increase broader economic growth at the state and local level.

A corrective tax or subsidy is “well-targeted” if it primarily affects choices that are more distorted by market failures. Energy efficiency subsidies are designed to correct multiple distortions: externalities, credit constraints, “landlord-tenant” information asymmetries, imperfect information, and inattention. We show that three important energy efficiency subsidies are primarily taken up by consumers who are wealthier, own their own homes, and are more informed about and attentive to energy costs. This suggests that these subsidies are poorly targeted at the market failures they were designed to address. However, we show that “tagging” can lead to large efficiency gains.

Electricity and water are often subsidized in developing countries to increase their affordability for low-income households. Ideally, such subsidies would create sufficient demand in poor neighborhoods to encourage private investment in their infrastructure. Instead, many regions receiving large subsidies have precarious distribution networks supplying users who never pay. Using a structural model of household electricity demand in Colombia, I predict the change in consumption and profits from upgrading low-quality electricity connections. I show that the existing subsidies, which provide greater transfers to areas with unreliable supply, deter investment to modernize infrastructure. Finally, I analyze alternative programs with stronger investment incentives.

We analyze the effects of the interactions that the two pillars of the European Union Common Agricultural Policy—market support and rural development—have on farmers' uptake of organic farming practices. Special attention is given to the 2003 reform, which substantially altered the relative importance of the two types of support by decoupling direct agricultural payments from the production of a specific crop. In our empirical analysis we study the case of Sweden, making use of the variation in the timing of farmers' decisions regarding participation in support programs. We estimate a dynamic non-linear unobserved effects probit model to account for unobserved individual heterogeneity and state dependence. Our results indicate the existence of a negative effect of the market support system in place when organic farming techniques were adopted before the 2003 reform. However, this effect is reversed by the introduction of decoupling. Furthermore, the effects of support differ between certified and non-certified organic production: both pillars have significant effects on non-certified organic farming, whereas certified organic farming is exclusively driven by agro-environmental subsidies.