TU Braunschweig Economics Department Working Paper No. 12
26 Pages Posted: 1 Oct 2011
Date Written: September 30, 2011
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: 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