Using stated preference methods to design cost-effective subsidy programs to induce technology adoption: An application to a stove program in southern Chile

• We study the design of a subsidy program to induce adoption of cleaner wood combustion stoves in Chile.
• We use stated preferences methods to estimate the household willingness to participate in the program.
• We simulate different subsidy programs depending on regulatory goals and constraints.
• Our results suggest that households are willing to participate in voluntary programs and to contribute to its costs.
• The technology being adopted and replaced and household characteristics are important for the subsidy programs.

We study the design of an economic incentive based program – a subsidy – to induce adoption of more efficient technology in a pollution reduction program in southern Chile. Stated preferences methods, contingent valuation (CV), and choice experiment (CE) are used to estimate the probability of adoption and the willingness to share the cost of a new technology by a household. The cost-effectiveness property of different subsidy schemes is explored numerically for different regulatory objectives. Our results suggest that households are willing to participate in voluntary programs and to contribute by paying a share of the cost of adopting more efficient technologies. We find that attributes of the existing and the new technology, beyond the price, are relevant determinant factors of the participation decision and payment. Limited access to credit markets for low income families can be a major barrier for an effective implementation of these types of programs. Variations in the design of the subsidy and on the regulator's objective and constraints can have significant impact on the level and the cost of reduction of aggregate emissions achieved.