Consumers or infrastructure firms? Who should the government subsidize to promote electric vehicle adoption when considering the indirect network and herd effects

At present, two subsidy policies, which are based on electric vehicle (EV) consumers and EV charging station firms, have been widely implemented in different areas in China to promote EV adoption. However, the effectiveness of subsidy policies is significantly influenced by the indirect network and herd effects, depicting the positive impacts of the numbers of energy infrastructure firms and the sales of vehicles on consumers’ utilities, respectively. Taking the aforementioned effects into consideration, this study examines the optimal subsidy policies by developing a Stackelberg game model. The game model analyzes the interaction and decisions of multiple stakeholders (i.e., consumers, energy infrastructure firms, EV and gasoline vehicle manufacturers, and the government). Interestingly, we find that a stronger herd effect will promote EV sales when the unit production cost of EVs is low; however, it will hinder EV sales when the unit production cost is high. Besides, we compare the effectiveness of the two subsidy policies for promoting EV adoption, reducing environmental impacts, and increasing the social welfare. Findings show that the effectiveness of subsidy policies highly depends on the extent of the indirect network and herd effects. Specifically, compared with EV consumers-based subsidy policy, EV charging station firms-based subsidy policy will be more effective in only two conditions: a weak indirect network effect and a strong herd effect. Otherwise, the EV consumers-based subsidy policy will be more effective. The findings of the paper are helpful in enhancing the effectiveness of subsidy policy in China.