Environmental Externalities in the Presence of Network Effects: Adoption of Low Emission Technologies in the Automobile Market
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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- 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.
- James Foreman Peck, 1996. "Technological Lock-in and the Power Source for the Motor Car," Economics Series Working Papers 1996-W07, University of Oxford, Department of Economics.
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