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Welfare effects of subsidizing a dead-end network of less polluting vehicles

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  • Dietrich, Antje-Mareike
  • Sieg, Gernot

Abstract

This article shows that in the presence of environmental externalities, it may be welfare enhancing to overcome a technological lock-in by a dead- end technology through governmental intervention. It is socially desirable to subsidize a dead-end technology if its environmental externality is small relative to the one of the established technology, if the installed base and/or the strength of the network effect is small and if future generations matter. Applying our results to the private transport sector, governments promoting alternatives to gasoline-driven vehicles have to be aware of these opposing welfare effects.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33780.

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Date of creation: 28 Sep 2011
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Handle: RePEc:pra:mprapa:33780

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Keywords: environmental externalities; network effects; private transport; technological change;

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  8. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
  9. Malte Schwoon, 2006. "A Tool to Optimize the Initial Distribution of Hydrogen Filling Stations," Working Papers FNU-110, Research unit Sustainability and Global Change, Hamburg University, revised Jun 2006.
  10. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
  11. Georg Hirte & Stefan Tscharaktschiew, 2012. "The optimal subsidy on electric vehicles in a metropolitan area - a SCGE study for Germany," ERSA conference papers ersa12p324, European Regional Science Association.
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