Susanna Berkouwer, PhD, Assistant Professor of Business Economics & Public Policy at the Wharton School of the University of Pennsylvania, will present the EEEP Seminar Series, “Green Subsidies with Demand Distortions” on April 8, 2026.
Abstract:
Standard Pigouvian theory predicts that externalities should be corrected at the margin. However, demand distortions such as credit constraints or behavioral biases create a wedge between marginal benefit and marginal cost. While these distortions can lower aggregate abatement, they can increase the efficiency of green subsidy spending. In theory, this happens through two channels: by shifting the marginal adopter toward higher private and social benefits and by increasing demand elasticity. We test these predictions by cross-randomizing fixed cost subsidies, marginal cost subsidies, and loan access for an induction stove among 2,100 charcoal users in Kenya. Marginal cost subsidies that lower electricity costs by up to 75% have a precise zero effect on both adoption and usage. Fixed cost subsidies abate CO2ℯ at US$10.3 per ton, and demand distortions are responsible for making this cost low: relaxing credit constraints raises abatement costs to US$16.8 per tCO2ℯ. Demand distortions furthermore increase the social welfare gain from US$16 to US$25 per subsidy dollar. These efficiency gains operate through the two hypothesized channels: demand distortions lower the subsidy cost per marginal abatement by 30% and increase the marginal positive externality by 14%. Without any distortions, counterfactual simulations suggest costs would reach US$137 per tCO2ℯ.
Bio:
Susanna B. Berkouwer is an Assistant Professor of Business Economics and Public Policy at the Wharton School of the University of Pennsylvania. Their research spans environmental economics and development economics, with projects studying energy efficiency adoption, carbon offsets, electricity grids, and air pollution from energy usage. They are a Faculty Research Fellow with the National Bureau of Economic Research, an affiliate with J-PAL and with BREAD, and an Associate Editor of the Journal of Development Economics. Susanna holds a PhD from UC Berkeley and an MA from Yale University and teaches microeconomics in the Wharton MBA program.