Path dependence, self-fulfilling expectations, and carbon lock-in

Wei Jin

Resource and Energy Economics, 2021, vol. 66, issue C

Abstract: Growing under the incumbent dirty regime might generate inertia against switching to a clean alternative and lead to the carbon lock-in. I analyze the economics of carbon lock-in through the lens of path dependence and self-fulfilling expectation. The incumbent dirty regime, as the first mover, accumulates an installed base of household users during early lead periods. The installed base generates an effect of path dependence that incentives upcoming households to keep on joining the incumbent dirty regime rather than switch to the clean alternative. Switching could be an expectation-driven selection outcome if expectations are formed about an expanding clean regime which outweighs the path dependence effect. Switching is a welfare-improving outcome if welfare gains by upcoming households switching to the clean regime offset welfare losses by installed-base households locked in the dirty one.

Keywords: Carbon lock-in; Path dependence; History; Self-fulfilling expectations; Endogenous technological change (search for similar items in EconPapers)
JEL-codes: O33 O44 Q43 Q55 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:66:y:2021:i:c:s0928765521000488

DOI: 10.1016/j.reseneeco.2021.101263

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