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Welfare Effects of Subsidizing a Dead-End Network of Less Polluting Vehicles

  • Antje-Mareike Dietrich

    ()

    (Institute of Transport Economics, Muenster)

  • Gernot Sieg

    ()

    (Institute of Transport Economics, Muenster)

Overcoming a technological lock-in by means of governmental intervention may be welfare enhancing, even if the implemented technology will be replaced by a better one at a certain time in the future. This holds, if the environmental externality of the implemented technology is small relative to that of the established technology and/or if the network effect of the installed base of service stations is small. If consumers’ and politicians’ discounting of future payoffs is high, the implementation even of dead-end technologies could be sensible, but policy makers with higher preferences for future payoffs may decide not to overcome lock-in by a new green, but dead-end technology. Governments promoting alternatives to gasoline-driven vehicles must be aware of opposing welfare effects for open-ended and dead-end technologies. Copyright Springer Science+Business Media New York 2014

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File URL: https://www.wiwi.uni-muenster.de/ivm/sites/ivm/files/documents/forschung/diskussionspapiere/workingpaper20.pdf
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Paper provided by Institute of Transport Economics, University of Muenster in its series Working Papers with number 20.

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Length: 25 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:mut:wpaper:20
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