Published in:Tinbergen Institute Discussion Paper 14-100/VIII
Extent:
1 Online-Ressource (40 p)
Language:
English
DOI:
10.2139/ssrn.2475876
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 1, 2014 erstellt
Description:
We argue that expectations about future energy use affect the transition from fossil fuels to renewable substitutes, because of an interaction between innovation and resource scarcity. The paper presents a model of directed technical change to study this interaction. We find that resource-saving technical change erodes the incentives to implement the substitute. Conversely, the anticipation of the substitute being implemented in the future diminishes the incentives to invest in resource-saving technology. As a result, two dynamic equilibria may arise, one with a transition to the substitute and with low resource efficiency, and one without the substitute and with fast efficiency improvements. Expectations determine which equilibrium arises in the decentralized market equilibrium. If multiple equilibria exist, the transition to the substitute generates higher welfare