Sun and Lemons: Getting over Information Asymmetries in the California Solar Market

A large expansion of photovoltaic panel production in China coincided with a dramatic fall in the cost of solar photovoltaic systems in California and a boom in installations between 2009 and 2013. However the roll of local contractors that install the systems is not well understood. Using detailed data of approximately 125,000 solar installations in California between 2007 and 2014 I argue that the boom in installations can not be explained by cheaper Chinese panel production in isolation. Instead, the introduction of Chinese panels is closely intertwined with the introduction of an innovative business model at the contractor level that solves an asymmetric information problem. Solar panels are long-lived productive assets, where quality is important but costly for individual consumers to verify. The adoption of a leasing model by several large local installers solved the asymmetric information problem and led to the adoption of Chinese panels and in turn lower overall system prices and more installations. Using a multilevel regression, I model the firm level decisions of introducing a leasing model and adopting Chinese panels directly. I show a strong and significant interaction effect between these decision variables. *I would like to thank Sturla Kvamsdal, Endre Tvinnereim, Peter Berck, Henrik Horn, and Thomas Tanger̊as for helpful comments and discussion.