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Welfare Effects of Subsidizing a Dead-End Network of Less Polluting VehiclesAntje-Mareike DietrichTechnical University of Braunschweig (TU Branschweig) - Institute for Economics and Business Administration Gernot SiegTU Braunschweig September 30, 2011 TU Braunschweig Economics Department Working Paper No. 12 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.
Number of Pages in PDF File: 26 Keywords: environmental externalities, network effects, private trans- port, technological change JEL Classification: O33, L92, Q55 working papers seriesDate posted: October 1, 2011Suggested CitationContact Information
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