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

TU Braunschweig Economics Department Working Paper No. 12

26 Pages Posted: 1 Oct 2011  

Antje-Mareike Dietrich

Technology University of Braunschweig - Institute for Economics and Business Administration

Gernot Sieg

WWU Münster

Date Written: September 30, 2011

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.

Keywords: environmental externalities, network effects, private trans- port, technological change

JEL Classification: O33, L92, Q55

Suggested Citation

Dietrich, Antje-Mareike and Sieg, Gernot, Welfare Effects of Subsidizing a Dead-End Network of Less Polluting Vehicles (September 30, 2011). TU Braunschweig Economics Department Working Paper No. 12. Available at SSRN: https://ssrn.com/abstract=1935823 or http://dx.doi.org/10.2139/ssrn.1935823

Antje-Mareike Dietrich

Technology University of Braunschweig - Institute for Economics and Business Administration ( email )

Spielmannstr. 8
Braunschweig, 38102
Germany

Gernot Sieg (Contact Author)

WWU Münster ( email )

Spielmannstr. 9
Münster, 48161
Germany

HOME PAGE: http://www.ivm-muenster.de

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