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Adjustable Product Attributes, Indirect Network Effects, and Subsidy Design: The Case of Electric Vehicles

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  • Kevin Remmy

Abstract

This paper develops a structural model of endogenous product attribute choice in the presence of indirect network effects to study electric vehicle (EV) subsidies. Using data on the German EV market, I find that a support scheme almost doubled EV sales but substantially affected EVs' price and driving range. These adjustments create a trade-off between optimizing different policy objectives when designing subsidies. Large purchase subsidies maximize EV sales, whereas large charging station subsidies maximize consumer and total surplus. The results suggest that maximizing EV sales can lead to unintended consequences in the form of price and range adjustments.

Suggested Citation

  • Kevin Remmy, 2026. "Adjustable Product Attributes, Indirect Network Effects, and Subsidy Design: The Case of Electric Vehicles," American Economic Journal: Economic Policy, American Economic Association, vol. 18(2), pages 107-140, May.
    • Handle: RePEc:aea:aejpol:v:18:y:2026:i:2:p:107-40
    DOI: 10.1257/pol.20230294
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    References listed on IDEAS

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    1. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
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    2. Peter Haan & Adrián Santonja & Aleksandar Zaklan, 2025. "Effectiveness and Heterogeneous Effects of Purchase Grants for Electric Vehicles," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(1), pages 185-223, January.
    3. Fournel, Jean-François, 2023. "Electric Vehicle Subsidies: Cost-Effectiveness and Emission Reductions," TSE Working Papers 23-1465, Toulouse School of Economics (TSE), revised Jun 2024.
    4. Burra, Lavan T. & Sommer, Stephan & Vance, Colin, 2024. "Policy complementarities in the promotion of electric vehicles," Energy Policy, Elsevier, vol. 192(C).
    5. Gessner, Johannes & Habla, Wolfgang & Rübenacker, Benjamin & Wagner, Ulrich J., 2025. "No place like home: Charging infrastructure and the environmental advantage of plug-in hybrid electric vehicles," ZEW Discussion Papers 25-017, ZEW - Leibniz Centre for European Economic Research.
    6. Zunian Luo, 2022. "Powering Up a Slow Charging Market: How Do Government Subsidies Affect Charging Station Supply?," Papers 2210.14908, arXiv.org, revised Jan 2023.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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