Product Homogeneity, Knowledge Spillovers, and Innovation: Why Energy Sector is Perplexed by a Slow Pace of Technological Progress

35 Pages Posted: 4 Mar 2016

See all articles by Wei Jin

Wei Jin

School of Economics, University of New South Wales

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics

Date Written: January 2, 2015

Abstract

There is a growing body of literature mentioning the slow pace of energy technological progress as compared to other technologies like information technology (IT), but the reasons why energy sector is perplexed by slow innovation remain unexplained. Based on a variety-expanding endogenous technological change model, this paper provides a rigorous economic exposition of the mechanism that underlies the slow progress of energy technological innovation. We show that in decentralized market equilibrium the growth rate of energy technology variety is lower than that of IT variety. This stems from both market fundamentals where the homogeneity of end-use energy goods is less likely to harness the pecuniary externality embedded in the household’s love-for-variety preference, and technology fundamentals where the capital-intensiveness of energy technology inhibits the non-pecuniary technological externality due to knowledge spillovers. We further show that a social planner solution can promote energy technological progress, yet still cannot achieve an outcome in which energy technology variety grows faster than IT variety. By targeting subsidies on energy technology R&D and the use of intermediate primary energy inputs by secondary energy producers, the decentralized market equilibrium can achieve an outcome in which energy technology grows faster than IT.

Keywords: Energy Technological Innovation; Product Homogeneity; Knowledge Spillovers; Love-for-variety Effect

JEL Classification: Q55; Q58; Q41; Q43; Q48; O31

Suggested Citation

Jin, Wei and Zhang, ZhongXiang, Product Homogeneity, Knowledge Spillovers, and Innovation: Why Energy Sector is Perplexed by a Slow Pace of Technological Progress (January 2, 2015). CCEP Working Paper 1501, January 2015. ; Crawford School of Public Policy, The Australian National University. Available at SSRN: https://ssrn.com/abstract=2741333 or http://dx.doi.org/10.2139/ssrn.2741333

Wei Jin

School of Economics, University of New South Wales ( email )

Kensington
High St
Sydney, NSW 2052
Australia

ZhongXiang Zhang (Contact Author)

Tianjin University - Ma Yinchu School of Economics ( email )

92 Weijin Road, Nankai District
Tianjin 300072
China
+86 22 87370560 (Phone)

HOME PAGE: http://ideas.repec.org/f/pzh243.html

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