Enabling Diffusion: How Complementary Inputs Moderate the Response to Environmental Policy
Posted: 18 Jan 2014
Date Written: January 17, 2014
While policies encouraging diffusion of new technologies provide incentives for adopting the focal good, they typically ignore the ecosystem of complementary goods and services. Based on existing literature on indirect network effects, we argue that when there is less availability of complementary goods, policies have a smaller impact on diffusion. Using a natural experiment based on the establishment of state-level solar carve-out policies, we demonstrate that solar power installations increased substantially more after the policy in cities where a critical complementary good – qualified installers – was more available.
Keywords: Diffusion processes; Complements; Strategy; Externalities; Government policy; Electric utilities
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