Optimal Environmental Policy with Network Effects: Is Lock-in in Dirty Technologies Possible?
AbstractNetwork externalities could be present for many low or zero emission technologies. One obvious example is alternative fuel cars, whose use value depends on the network of service stations. The literature has only briefy looked at environmentally benefcial technologies. Yet, the general literature on network effects is mixed on whether governments need to intervene in order to correct for network externalities. In this paper we study implications of network effects on environmental policy in a discrete time dynamic game. Firms sell a durable good. One type of durable is causing pollution when being used, while the other type is "clean". Consumers' utility increase in the number of other users of the same type of durable, which gives rise to the network effect. We find that the optimal tax depends on the size of the clean network. If starting from a situation in which the dirty network dominates, the optimal tax may exceed the marginal environmental damage, thereby charging consumers for more than just their own emissions. Applying a Pigovian tax may, on the contrary, fail to introduce a socially beneficial clean network.
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Bibliographic InfoPaper provided by Oslo University, Department of Economics in its series Memorandum with number 15/2013.
Length: 29 pages
Date of creation: 15 Jun 2013
Date of revision:
Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
More information through EDIRC
Network e ects; lock-in; enviromnetal taxes;
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-13 (All new papers)
- NEP-ENE-2013-09-13 (Energy Economics)
- NEP-ENV-2013-09-13 (Environmental Economics)
- NEP-NET-2013-09-13 (Network Economics)
- NEP-REG-2013-09-13 (Regulation)
- NEP-RES-2013-09-13 (Resource Economics)
- NEP-TRE-2013-09-13 (Transport Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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