Welfare Effects of Subsidizing a Dead-End Network of Less Polluting Vehicles

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 r...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Dietrich, Antje-Mareike, Sieg, Gernot
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2013
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Summary: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.(This abstract was borrowed from another version of this item.)