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


  • Dietrich, Antje-Mareike
  • Sieg, Gernot


This article shows that in the presence of environmental externalities, it may be welfare enhancing to overcome a technological lock-in by a deadend 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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  • Dietrich, Antje-Mareike & Sieg, Gernot, 2011. "Welfare effects of subsidizing a dead-end network of less polluting vehicles," Economics Department Working Paper Series 12, Technische Universität Braunschweig, Economics Department.
  • Handle: RePEc:zbw:tbswps:12

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    References listed on IDEAS

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    Cited by:

    1. Dietrich, Antje-Mareike, 2017. "Platform intermediation to sponsor alternative fuel vehicles," Transport Policy, Elsevier, vol. 54(C), pages 90-99.
    2. Dietrich, Antje-Mareike, 2016. "Governmental platform intermediation to promote alternative fuel vehicles," Economics Department Working Paper Series 16, Technische Universität Braunschweig, Economics Department.

    More about this item


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

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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