The Market for Electric Vehicles: Indirect Network Effects and Policy Design

53 Pages Posted: 27 Oct 2014 Last revised: 19 May 2016

Shanjun Li

Cornell University - School of Applied Economics and Management

Lang Tong

Cornell University

Jianwei Xing

Cornell University

Yiyi Zhou

Stony Brook University

Date Written: May 2016

Abstract

The market for plug-in electric vehicles (EVs) exhibits indirect network effects in that there is interdependence between consumer decision of EV purchase and investor decision of charging station deployment. Through a stylized model, we demonstrate that indirect network effects on both sides of the market lead to feedback loops which could amplify shocks and alter the diffusion process of the new technology. The relative strength of indirect network effects on the two sides of the market has important implications on policy design. Based on quarterly EV sales and charging station deployment in 353 Metro areas from 2011 to 2013, our empirical analysis finds indirect network effects on both sides of the market with those on the EV demand side being stronger. The federal income tax credit of up to $7,500 for EV buyers contributed to 40% of the EV sales during 2011-2013 with feedback loops explaining 40% of that increase. A policy of equal-sized spending but subsidizing charging station deployment would have been more than twice as effective in promoting EV adoption.

Keywords: Indirect Network Effects, Electric Vehicles, Policy Design

JEL Classification: Q03, A04, R05

Suggested Citation

Li, Shanjun and Tong, Lang and Xing, Jianwei and Zhou, Yiyi, The Market for Electric Vehicles: Indirect Network Effects and Policy Design (May 2016). Available at SSRN: https://ssrn.com/abstract=2515037 or http://dx.doi.org/10.2139/ssrn.2515037

Shanjun Li (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Lang Tong

Cornell University ( email )

Ithaca, NY 14853
United States

Jianwei Xing

Cornell University ( email )

Ithaca, NY 14853
United States

Yiyi Zhou

Stony Brook University ( email )

Paper statistics

Downloads
1,001
Rank
16,737
Abstract Views
2,416