Subsidies Theory: Firm Impacts and Decision-Making

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Subsidies have led to increased research and development in new energy efficient and renewable energy technologies. In Germany, the government has effectively used subsidies to support renewable energy technologies, and this support has been accompanied by a reduction in CO2 emissions.

Because subsidy design is very context-dependent, it is difficult to generalize about the future success of subsidies that have been successful in other countries and other industries. However, researchers have identified some common characteristics of successful subsidy programs. When private investors are reluctant to invest in high-risk high-reward technologies, government subsidies can play an important role in the initial research and development of those technologies. Bottom-up support and consistent commitment have also been identified as key factors in determining the effects of a subsidy program.