Welfare Effects of Subsidizing a Dead-End Network of Less Polluting Vehicles
Technology University of Braunschweig - Institute for Economics and Business Administration
September 30, 2011
TU Braunschweig Economics Department Working Paper No. 12
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
Date posted: October 1, 2011
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