Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73975
Authors: 
Moretto, Michele
Dosi, Cesare
Year of Publication: 
2004
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 156.2004
Abstract: 
The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms’ switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminately.
Subjects: 
Environmental innovation
Investment irreversibility
Network externalities
Investment grants
Second-price auction
JEL: 
Q28
O38
Document Type: 
Working Paper

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