Moral Hazard Assessment in State-subsidized Renewable Energy Investments

  • Olivér Hortay Department of Environmental Economics, Faculty of Economic and Social Sciences, Budapest University of Technology and Economics, H-1521 Budapest, P.O.B. 91, Hungary

Abstract

This paper presents the impact of state subsidy programs on moral hazard in renewable energy investments. The purpose of the research is to build a theoretical model which is able to handle the borrower’s behavior under asymmetric information circumstances, thus creating a new aspect in the debate about the choice of the financially ideal incentive structure. The general conclusion of the article is that technology based subsidy mechanisms which provide great protection to the investing companies (ceteris paribus), increase information asymmetry and agency costs. While these systems improve predictability of revenues, they block effective lending or otherwise, the market dependent subsidies moderate the moral hazard, which reduce the risk of fluctuating market prices.

Keywords: contract theory, asymmetric information, renewable energy investments, state subsidies
Published online
2019-01-28
How to Cite
Hortay, O. (2019) “Moral Hazard Assessment in State-subsidized Renewable Energy Investments”, Periodica Polytechnica Social and Management Sciences, 27(1), pp. 37-47. doi: https://doi.org/10.3311/PPso.12360.
Section
Articles