Peer Effects in the Diffusion of Solar Photovoltaic Panels

TLDR

Social interaction (peer) effects are recognized as a potentially important factor in the diffusion of new products, especially for environmentally friendly goods where marketers and policy makers seek causal peer effects to expedite adoption. The study offers a simple, straightforward methodology to identify peer effects with rich data, avoiding biases from traditional fixed‑effects estimation using past installed bases. The authors analyze California solar PV diffusion, showing that each additional installation in a zip code raises adoption probability by 0.78 percentage points. The findings guide marketers to design referral strategies that lower acquisition costs and offer insights into the diffusion of environmentally friendly technologies.

Abstract

Social interaction (peer) effects are recognized as a potentially important factor in the diffusion of new products. In the case of environmentally friendly goods or technologies, both marketers and policy makers are interested in the presence of causal peer effects as social spillovers can be used to expedite adoption. We provide a methodology for the simple, straightforward identification of peer effects with sufficiently rich data, avoiding the biases that occur with traditional fixed effects estimation when using the past installed base of consumers in the reference group. We study the diffusion of solar photovoltaic panels in California and find that at the average number of owner-occupied homes in a zip code, an additional installation increases the probability of an adoption in the zip code by 0.78 percentage points. Our results provide valuable guidance to marketers designing strategies to increase referrals and reduce customer acquisition costs. They also provide insights into the diffusion process of environmentally friendly technologies.