Minimum prices above the market level can lead to ineffcient production and oversupply.
We investigate whether this effect is even more pronounced when decision makers
are influenced by their social environment. Using data of minimum prices for renewable
energy production in Germany, we analyze if individual decisions to install solar panels are affected by the investment decisions of others. We implement a propensity
score matching routine on municipality level and estimate that existing panels in the
municipality increase the probability and number of further installations considerably,
even in areas with minimal solar potential. This social effect is stronger in areas with
more solar potential and less unemployment. A higher number of existing panels and
more concentrated installations increase the social effect further. We discuss policy
implications of these social effects
