Carbon Lock‐In: The Role of Expectations

45 Pages Posted: 5 Dec 2017

See all articles by Gerard van der Meijden

Gerard van der Meijden

Vrije Universiteit Amsterdam, School of Business and Economics

Sjak Smulders

Tilburg University - Tilburg University School of Economics and Management; University of Calgary - Department of Economics

Date Written: November 2017

Abstract

We argue that expectations about future energy use affect the transition from fossil to renewables because of an interaction between innovation and resource scarcity. This article presents a model of directed technical change to study this interaction. We find that fossil‐saving technical change erodes the incentives to implement renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises.

Suggested Citation

van der Meijden, Gerard and Smulders, Jacobus (Sjak) A., Carbon Lock‐In: The Role of Expectations (November 2017). International Economic Review, Vol. 58, Issue 4, pp. 1371-1415, 2017. Available at SSRN: https://ssrn.com/abstract=3079104 or http://dx.doi.org/10.1111/iere.12255

Gerard Van der Meijden (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Jacobus (Sjak) A. Smulders

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2920 (Phone)
+31 13 466 3042 (Fax)

HOME PAGE: http://www.uvt.nl/webwijs/english/show.html?anr=801585&lang=en

University of Calgary - Department of Economics ( email )

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Calgary, Alberta T2N 1N4
Canada

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