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Environmental Externalities in the Presence of Network Effects: Adoption of Low Emission Technologies in the Automobile Market

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Author Info

  • Eftichios Sartzetakis

    ()

  • Panagiotis Tsigaris

Abstract

The paper considers a market currently dominated by a dirty technology that imposes significant environmental costs. A clean technology, with zero environmental costs, is introduced after the maturity of the dirty technology’s network. Adoption of the clean technology is not possible due to the network benefits in favour of the dirty technology. The paper considers two types of policy intervention to correct for the environmental externality. First, we find that the tax necessary to induce adoption of the clean technology is very high implying that a tax equal to the marginal environmental damage would not resolve the externality problem in many cases. Second, if tax revenues are earmarked towards subsidizing the clean technology, the tax is lower than in the previous case and can be set equal to the marginal external damage. Copyright Springer Science+Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11149-005-3961-3
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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 28 (2005)
Issue (Month): 3 (November)
Pages: 309-326

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Handle: RePEc:kap:regeco:v:28:y:2005:i:3:p:309-326

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Web page: http://www.springerlink.com/link.asp?id=100298

Related research

Keywords: automobile market; environmental externalities; fuel cell technology; network effects;

References

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  1. James Foreman-Peck,, 1996. "'Technological Lock-in' and the Power Source for the Motor Car," Oxford University Economic and Social History Series _007, Economics Group, Nuffield College, University of Oxford.
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Cited by:
  1. Dietrich, Antje-Mareike & Sieg, Gernot, 2011. "Welfare effects of subsidizing a dead-end network of less polluting vehicles," Economics Department Working Paper Series 12, Technische Universität Braunschweig, Economics Department.
  2. Perdiguero, Jordi & Jiménez, Juan Luis, 2011. "Sell or not sell biodiesel: Local competition and government measures," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(3), pages 1525-1532, April.
  3. Greaker, Mads & Midttømme, Kristoffer, 2013. "Optimal Environmental Policy with Network Effects: Is Lock-in in Dirty Technologies Possible?," Memorandum 15/2013, Oslo University, Department of Economics.
  4. Slivko, Olga, 2012. "Direct and indirect subsidies in markets with system goods in the presence of externalities. Preliminary version," Working Papers 2072/211631, Universitat Rovira i Virgili, Department of Economics.

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